Commercial lease falls apart under fishy circumstances

[Letigredevil]

We have been working on a commercial lease for a little over 6 months now. We just finished up with all the last bits of the lease. The attorneys on both sides have finished and we were adding on a few last exhibits from each party. Things like the site plan, rules and regulations, use restrictions and things like that. Now, the space we are leasing is part of a well known shopping center in our area. There are two major anchors, one being Target and the other a high-end supermarket. The space we are negotiating is about 1600 sf and we plan to open a bakery in said space. Now we are about 2-3 days from signing the final papers when the landlord comes and says that we have a problem. Apparently, one of the paralegals on the legal team was going over the use restrictions exhibit and came across some thing in the supermarket’s section stating that no other tenants were allowed who “provided food for off-premises consumption”. The landlord came back to us and said that the tried going to the supermarket to get them to sign a waiver but that the supermarket gave a very firm no. Essentially, the deal is dead. Now, I realize that there is not much recourse on our end since nothing had been signed. However, I find it very hard to a swallow that the landlord was not aware of this restriction until the paralegal found it. Am I right in assuming that the landlord (who has been over this property for 9 years now) would know exactly what the use restrictions are of one of his largest tenants? There are plenty of other retailers in the center who offer food for off-premises consumption (Panera, Chick-fil-A, Five Guys, Chili’s, Moes Southwest, etc). According to the use restrictions they all would have had to get waivers from the supermarket. And if that’s the case, the landlord would have been very aware of this from the get go since he would have had to deal with it on numerous other occasions. I feel like I’m being served up this story to cover the real reason they are backing out. Any thoughts?

 

[Just Blue]

We have been working on a commercial lease for a little over 6 months now. We just finished up with all the last bits of the lease. The attorneys on both sides have finished and we were adding on a few last exhibits from each party. Things like the site plan, rules and regulations, use restrictions and things like that. Now, the space we are leasing is part of a well known shopping center in our area. There are two major anchors, one being Target and the other a high-end supermarket. The space we are negotiating is about 1600 sf and we plan to open a bakery in said space. Now we are about 2-3 days from signing the final papers when the landlord comes and says that we have a problem. Apparently, one of the paralegals on the legal team was going over the use restrictions exhibit and came across some thing in the supermarket’s section stating that no other tenants were allowed who “provided food for off-premises consumption”. The landlord came back to us and said that the tried going to the supermarket to get them to sign a waiver but that the supermarket gave a very firm no. Essentially, the deal is dead. Now, I realize that there is not much recourse on our end since nothing had been signed. However, I find it very hard to a swallow that the landlord was not aware of this restriction until the paralegal found it. Am I right in assuming that the landlord (who has been over this property for 9 years now) would know exactly what the use restrictions are of one of his largest tenants? There are plenty of other retailers in the center who offer food for off-premises consumption (Panera, Chick-fil-A, Five Guys, Chili’s, Moes Southwest, etc). According to the use restrictions they all would have had to get waivers from the supermarket. And if that’s the case, the landlord would have been very aware of this from the get go since he would have had to deal with it on numerous other occasions. I feel like I’m being served up this story to cover the real reason they are backing out. Any thoughts?

What state?

 

[Letigredevil]

Pennsylvania

 

[quincy]

What other reason do you believe the landlord would have for not approving the lease, if not for the stated reason that lease restrictions in place to accommodate the supermarket do not permit leasing to your type of business?

Does the supermarket have its own bakery?

The restaurants you mentioned, by the way, have takeout services but their main source of business is from sit-in dining (pre-Covid, at any rate).

 

[Letigredevil]

My gut tells me that something is up. Maybe they were approached by another business that wants the space. Maybe they were using us as leverage fir more money, I really don’t know. I guess I assume landlords know their centers and are familiar with which kind of businesses would work and which ones wouldn’t. I realize they haven’t memorized every little thing but this is a big enough thing that it doesn’t seem like something you conveniently forgot about. The restrictions use does state that it applies to dine in if they offer any to-go options. Obviously the supermarket has been pretty flexible as there are plenty of other places that are doing business and have received the waiver.

 

[bcr229]

Are the restaurants all on their own parcels separate from the actual shopping center property? In my area the restaurants you mentioned would typically be in their own separate buildings, they wouldn't occupy space in a strip mall.

 

[LdiJ]

Are the restaurants all on their own parcels separate from the actual shopping center property? In my area the restaurants you mentioned would typically be in their own separate buildings, they wouldn't occupy space in a strip mall.

I don't think that they were discussing a strip mall, I think it sounds more like an indoor mall based on the fact that target is one of the anchors. However in my area every single one of the restaurants mentioned are either inside regular malls or located in strip malls. None of them have freestanding buildings. Although there is a freestanding building being built for a Chick-fil-A.

A grocery store is not going to attempt to challenge a restaurant being located in the same mall, strip or not. It is not in their best interest to make that kind of challenge because that kind of business is too lucrative for a mall/strip mall. I doubt that waivers were even necessary for any of the restaurants. I suspect that it was even written into the lease that the restriction did not apply to restaurants.

However, any decent grocery store is going to have their own bakery section, therefore a bakery would be a direct competitor to the grocery store.

 

[quincy]

My gut tells me that something is up. Maybe they were approached by another business that wants the space. Maybe they were using us as leverage fir more money, I really don’t know. I guess I assume landlords know their centers and are familiar with which kind of businesses would work and which ones wouldn’t. I realize they haven’t memorized every little thing but this is a big enough thing that it doesn’t seem like something you conveniently forgot about. The restrictions use does state that it applies to dine in if they offer any to-go options. Obviously the supermarket has been pretty flexible as there are plenty of other places that are doing business and have received the waiver.

Your gut feeling, unfortunately, is not enough to support any serious argument for why a lease should be approved for your bakery. It is a weak argument given that entities providing off-premise food consumption have been specifically excluded from doing business in that area per written terms of the supermarket lease.

You were also still in the negotiating stage and no lease between you and the bakery had been approved and signed.

The pandemic has led to many restaurants offering greater takeout services in order to survive but that generally is not a service that drives their businesses in ordinary times. I imagine if any waivers were necessary for the restaurants from the supermarket, they could have an expiration date.

It certainly would have been nicer had the off-premises consumption restriction been noticed sooner, and it arguably should have been noticed sooner, but I don’t see that you have any option other than to look for another location for your bakery.

I wish you good luck with your bakery, once it is open for business.

 

[adjusterjack]

the landlord

To whom are you referring?

The CEO of the company that owns the property? Some other corporate executive? A management company? Somebody who wasn't there when the other occupancies came in?

Any number of people (coming or going) could have been involved in complicated leasing to dozens (or more) occupants over a period of many years. As cynical as I usually am, I'm not surprised that the use restriction was overlooked.

Be thankful that it was spotted by an eagle eyed paralegal now instead of you being embroiled in a costly lawsuit after your business is up and running.

Bear in mind that the "landlord" also paid a ton of money to his lawyers and is probably as disappointed as you are.

 

[zddoodah]

Am I right in assuming that the landlord (who has been over this property for 9 years now) would know exactly what the use restrictions are of one of his largest tenants?

No one here could possibly know what this unknown landlord might know.

Any thoughts?

Not really sure what you were looking for here. There's no legal issue, and if there were, you have a lawyer. Asking about use restrictions should have been something your lawyer did about early in the process.

My gut tells me that something is up. Maybe they were approached by another business that wants the space. Maybe they were using us as leverage fir more money

Could be, but it doesn't matter.

Are the restaurants all on their own parcels separate from the actual shopping center property? In my area the restaurants you mentioned would typically be in their own separate buildings, they wouldn't occupy space in a strip mall.

There are tons of shopping centers that have all of the sorts of stores the OP mentioned. Just because the restaurants are in different buildings doesn't mean they're on different pieces of property.