The Law

Tenant Can’t Have It Both Ways by Ron Davis A tenant has failed in efforts to stifle competition at an Indiana shopping center by forcing the center’s owner to honor the full terms of their lease. The shopping center, Sagamore Center, located in the Lafayette area, leased space to the tenant for the intended purpose of having a supermarket operating at the facility, but friction between the two parties soon arose over a provision of the lease. That provision prevented any other supermarket from operating at Sagamore Center. The tenant, which operates the grocery store chain Pay Less Super Markets, Inc., had assumed the lease through assignment from Kroger Company. Pay Less also assumed the Kroger leases of two other nearby stores. But Pay Less apparently never intended to operate a store at Sagamore Center. Instead, the admitted objective was to prevent the operation there of another grocery store that would drain business from the other two nearby Pay Less stores. So Pay Less sublet the Sagamore Center space to a home-appliance retailer. Shortly after that, the Sagamore Center owner tested the legitimacy of the noncompete agreement when a Target store vacated the facility and the center’s owner leased that space to Schnucks, a Missouri-based operator of grocery stores. Pay Less quickly protested, claiming that the shopping center’s owner had violated the terms of the lease between the two parties. In response, the center’s owner asked the courts to decide if Pay Less should be allowed to enforce a restrictive agreement that benefits neither the shopping center nor the interests of Pay Less in the shopping center. The Indiana Supreme Court, in its ruling in favor of the shopping center owner, explained, “Because the Kroger site at the Sagamore Center is no longer being used as a grocery store location, there is no interest within the center for the restrictive covenant to protect. Pay Less is attempting to use the covenant to restrict competition for its grocery stores located at other locations.... If Pay Less had chosen to continue grocery operations at the center, its interest in the lease would support enforcement of the covenant. However, Pay Less voluntarily abandoned grocery operations in the center and thereby severed the restrictive covenant from the occupancy.”(Tippecanoe Associates II, LLC v. Kimco Lafayette 671, Inc., 2005 WL 1476458) Decision: June 2005 Published: July 2005