Owner Entitled to Replace Store with Noncompetitor

Facts: The lease between a family shoe store and a mall owner included a “competing business” provision under which the owner was prohibited from leasing to any other shoe stores substantially similar to and/or competitive with the tenant. This included other “family” shoe stores. If the owner breached the provision, the tenant could terminate the lease with 30 days notice or continue to operate its store in accordance with all the terms and conditions of the lease. If the tenant continued its operations, it had a choice of taking a 50 percent rent reduction or paying 4 percent of gross sales monthly in lieu of total rents due, whichever was less. An exception to the provision allowed the owner to maintain the existing number of shoe stores operating at the mall by replacing them with new shoe stores as they went out of business. However, certain enumerated chain and “family” shoe stores were not eligible replacements under the lease.

Several months after moving into the mall, the tenant invoked the competing business provision and began paying 4 percent of gross sales in lieu of rent because it claimed that a new shoe store was not a valid “replacement” for one that had gone out of business. It said that, unlike the previous store, this one was a “competitor.” The tenant discovered that the owner had asked the competitor to stop carrying children's shoes, which would have classified it as a “family” store. It claimed that any attempts to customize the competitor by prohibiting the sale of children's shoes did not change the fact that it was competitive with the tenant.

The owner pointed out that the opening of the competitor did not violate the lease, because the competitor was a valid replacement store, not a true competitor, and it demanded full rental payments. It then sued the tenant to recover the missed rent, alleging that the tenant had wrongfully invoked a provision of the lease allowing for the withholding of rent. But the tenant asserted that it had paid the correct amount owed under the lease, in light of space being leased to one of its competitors. The owner and the tenant each asked the court for a judgment without a trial in its favor.

Decision: The court granted the owner's request and denied the tenant's request for a judgment without a trial in its favor.

Reasoning: The court noted that the tenant's argument that the competing business provision that barred the owner from opening substantially similar and/or competitive shoe stores applied equally to the opening of replacement shoe stores. However, the court rejected that interpretation of the lease and ruled in the owner's favor because: (1) the provision's language indicated that despite the restriction placed on leasing space to a competing store, the owner still could maintain the existing number of shoe stores by replacing them as long as certain competitors were not permitted; (2) the competitor was not a certain competitor; and (3) the competitor qualified as a replacement shoe store because leasing to it did not increase the number of shoe stores at the mall from the number in existence when the lease was executed.

• GP-Northland Center, LLC v. the Shoe Show of Rocky Mount, Inc., April 2009