by Nadav Ravid
The following is an excerpt from an article that Nadav Ravid has written, and is scheduled to be published in the Los Angeles Lawyer Real Estate Law Edition in January 2013. The Los Angeles Lawyer article will be an in-depth analysis of the many issues that parties need to consider in negotiating and drafting an exclusive use provision. The section below covers the topic of defining the exclusive.
The first and primary issue to consider is how to define the scope of the exclusive. Some exclusives focus on restricting a type of business, such as a “drug store,” while others focus on restricting certain types of products, such as “groceries.” In either case, problems can arise. For example, an exclusive right to operate a “drug store” has been held to prevent other tenants from selling prescription drugs, but not health and beauty products, items that many people likely expect to find in a drug store. The exclusive right to operate a “furniture store” has been held to preclude a competitor from selling carpets, rugs, and linoleum, products that many people do not consider to be “furniture.” An exclusive for a “martial arts studio” has been held to preclude a boxing and kick-boxing personal defense/fitness facility. An exclusive right to sell “groceries” has been held to prevent the sale of food and beverage items, but not alcoholic beverages, paper products, or household cleaners.
In Winn-Dixie Stores, Inc. v. Big Lots Stores, Inc., decided on August 13, 2012, the court analyzed over 100 of Winn-Dixie’s leases spanning the states of Florida, Alabama, Georgia, Mississippi, and Louisiana, and determined that an exclusive on “groceries” was ambiguous. Dollar Tree, the violating tenant, argued that “groceries” should include only food items but not any beverages, snacks, or candy, while Winn-Dixie argued that “groceries” should include all food items and all beverage products, as well as non-food items such as paper products and household cleaners. In rejecting each side’s interpretation, the court came up with its own definition to include only food items and beverages, but not alcoholic beverages. Interestingly, the Winn-Dixie court—a federal court—declined to follow a 2002 Florida state court’s interpretation of the identical exclusive provision prohibiting groceries. The Florida state court concluded the term “groceries” should be interpreted to include more than just food. In distinguishing the two cases, the federal Winn-Dixie court explained that the leases it analyzed dated back to 1957, while the single lease analyzed by the state court was from 1986. This led the court to determine that while “groceries” may have been intended by the parties to cover non-food items in the 1986 lease, the term “groceries” in the 1957 leases was not intended to cover non-food items. The court based its decision on its determination that the offerings of groceries have evolved over time. Although the court’s analysis may appear to be making a distinction without a difference, the lesson learned is that it is imperative to define the restricted products with as much specificity as possible, or else leave it up to a judge to do it for you.