Tenant's Exclusive Use Provision Applied to Other Buildings

Facts: A fast-food restaurant had an exclusive right to sell “sandwiches and subs” in a shopping center that consisted of three buildings (Building A, Building B, and Building C). The fast-food restaurant tenant was located in Building A. Its exclusive use provision stated: “Throughout the Term … Tenant shall have the exclusive right in the Shopping Center to engage in the sale of delicatessen and submarine type sandwiches.” Knowing this, the shopping center's owners allowed a computer services company in Building B to become an Internet café that sold Internet access, drinks, and food, including sandwiches. The fast-food restaurant tenant sold its business and assigned its lease—including the exclusive use provision—to a new tenant. It did not discuss the fact that the Internet café was serving sandwiches—the sales of which had escalated to 30 percent to 50 percent of its total sales over several months.

When the new tenant discovered that the Internet café was selling sandwiches, it sued the owners, claiming that the exclusive use provision in its assigned lease had been breached by the sandwich sales in Building B. The owners argued that the exclusive use provision did not apply to the Internet café, only competing businesses in Building A.

The court ruled that the new tenant's exclusive use provision extended beyond Building A to include the Internet café in Building B, prohibiting it from selling sandwiches. The owners appealed.

Decision: The appeals court upheld the trial court's decision in favor of the new tenant.

Reasoning: The appeals court stated that the new tenant's lease, the layout of the shopping center, and the purpose of the exclusive use provision were evidence that the provision applied to Building B.

Under the lease, the exclusive use provision applied “in the Shopping Center.” The appeals court pointed out that several lease provisions defined “Shopping Center” to include all three buildings. For example, the “Shopping Center” had only one name and address listed for the all three buildings in the lease. And the site plan for the “Shopping Center” included all three.

The appeals court decided that the term “Shopping Center” must be interpreted to apply to all three buildings, because to rule otherwise would undermine the “full force and effect” language of the exclusive use provision—that is, to limit the new tenant's competition in the shopping center—by permitting the owners to lease space in Building B to a competitor that could devastate the new tenant's business. The purpose of an exclusive use provision is to protect a tenant by reducing the prospect of future competition within the same shopping center, the appeals court noted.

• Garcha et al. v. Central Plaza-Union City, L.P., December 2009