Discovering Exclusivity Provisions

If you overhear discussion regarding an exclusivity provision, fear not, you are not eavesdropping on a robot couple’s conversation about commitment. Rather, what you may have stumbled upon is a matter regarding a commercial lease. The scenario most likely involves another business setting up shop within a predetermined perimeter, offering a service or selling a product deemed too similar to the one offered or sold by another business owner. If a commercial lease includes such a clause, it is called an exclusivity provision. It can appear in one of two ways: either it specifically mentions the type of business or type of goods that cannot be sold or it merely implies exclusivity by stating something like “tenant shall have the exclusive right to operate ____.” Typically, a healthy tension or balance between restricting commerce and protecting it will be the ideal result. Regulating what goods and service are sold by new businesses may be seen as restricting commerce. However, ensuring that an old business remains prosperous and continues to pay its rent can be seen as protecting commerce. The key, as always, is communication. In commercial leasing, it will always come back to the written lease.

CLARITY REDUCES CONFLICT

Need a quick example of how and where those words in a commercial lease might come into play? Old Man Wilson’s place, Wilson’s Drugstore, has been operating in town since your parents were in grade school. You hear that a developer is planning to build a supermarket directly across the street, one of the big chains. What does pretty much every big chain supermarket contain within its walls? If you said a drugstore, you would be correct. Sometime later, you run into Old Man Wilson who proceeds to tell you of the hard hit his business has taken since the new supermarket opened. Apparently, Wilson Drugstore’s lease prohibited the building of another drugstore within a certain distance. So now it is a matter of exclusivity. Now, a claim could be made that no one build a drugstore. It is a supermarket with a drugstore inside of it. It all comes down to the clarity of the language. If it is just a matter of the type of establishment being built that is written in the lease, Old Man Wilson may have a problem. On the other hand, if the lease does describe the goods and services sold by Wilson’s Drugstore and prohibits those same goods and services from being sold, regardless of the building itself, then Wilson’s Drugstore may have a case.

Do you know why a case is referred to as “airtight”? It has no holes for air to escape through. Yet, we know that we are not talking about ventilation here. Experts and practitioners of the law must remain ever vigilant with the letter of the law because of what others may try to slip through those holes. However, generally most situations are not air tight. It is rather simple though: the more specific the language; the greater the clarity; the fewer the holes.

ENFORCING EXCLUSIVITY

So, we just established that the first line of defense is clarity. What are some factors courts consider when faced with the decision of whether or not to enforce an exclusivity provision?

• Is it reasonably necessary for the tenant?
• Is it reasonable in duration and territorial scope?
• Does it unduly prejudice the interests of the public?

If a landlord violates a provision, a tenant has two basic courses of action.

• The first course of action is already in a tenant’s hands in the form of leasing obligations, chief of which is rent. For example, rent may be reduced or abated entirely pursuant to a clause in the lease until the violation stops. This is often done through a court action.
• The second course of action is to sue for injunctive relief or damages. The first term refers to an attempt to block the competitor from opening up in the first place. The second one is an attempt to regain income lost due to the opening of the other business taking place.

However, before looking at either of these scenarios, be sure to consult an experienced attorney.

In case you were wondering or in case it was not clear, clarity in a lease is of the utmost concern. It is also where the skills of an attorney first apply. Issues of language that can one day cause conflict are the true domain of an attorney. If you have any questions regarding a commercial lease, contact the Law Office of H. Benjamin Sharlin LLC for a free consultation.

The Law Office of H. Benjamin Sharlin LLC is owned and operated by H. Benjamin Sharlin and serves all of Mercer County, New Jersey and the surrounding areas. Mr. Sharlin is a bilingual Spanish-speaking attorney who vigorously represents the interests of all his clients.

Please be advised that this blog is for informational purposes only, is not legal advice and does not create an attorney-client relationship.