Noncompete Provisions in Leases: Be Specific

Sandwich and burrito.When tenants rent space in a multi-unit commercial complex, they often demand protection from competition within their real property leases through noncompete provisions. The risk is that the landlord will lease another unit within the same commercial complex to a competing business. Thus, many leases contain a provision that restricts the landlord’s ability to lease another unit within the commercial complex to a tenant operating a specific type of business or offering a type of service or product.

The key to these provisions is to be specific and be sure there is as little ambiguity as possible. For example, in the case of White City Shopping Center, LP v. PR Restaurants, LLC, No. 20061963313, 2006 WL 3292641 (Mass. Super. Oct. 31, 2006), the owner of a Panera Bread restaurant negotiated a provision restricting the landlord from leasing any unit within the shopping center to another restaurant serving sandwiches. The landlord rented a space to a Qdoba restaurant (a Mexican-style restaurant), and the Panera Bread operator argued that a burrito is a sandwich; thus, the landlord violated the lease. The court found that a burrito did not fit within the meaning of a sandwich, but the outcome could have come out differently based on a different judge’s opinion. What about a gyro, calzone, or food served on one slice of bread? The take away here is to define what you can as specifically as you can in these provisions.

The White City Shopping Center case also shows the importance of specificity because the provision also required that the other restaurant (i.e., Qdoba) must expect at least 10% of its gross revenues from sandwiches. The problem is obtaining the information to access whether 10% of revenues come from sandwiches. Why would the other restaurant share this information? It has no contractual obligation to share such information. The result is that the tenant trying to claim that the landlord breached its obligation will have a hard time obtaining the information to prove the breach in many cases. Thus, from the original tenant’s perspective, the lesson is to be sure that the restrictive provision does not limit the ability to prove a breach.

Please contact me, Bill Humphries, or another MPBA attorney with your leasing needs.

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