Competing Tenant Not Liable Under Exclusive Right

Facts: A real estate company and an insurance company that were joint owners of a shopping center signed a declaration creating restrictive covenants that were to run with the land on which the center was built. Under the declaration, a tenant that sold food and drugs had an exclusive right to operate a “grocery store” in the shopping center. The grocery store leased its space from the real estate company, which had purchased its share of the shopping center mainly because of this exclusive right for its tenant. The declaration stated that “the developer covenants and agrees that it shall not permit the use or operation of any building in the shopping center, or any space therein, other than the Store building, for the sale of groceries, package liquor, beer or wine, or for similar food purposes larger than 2,000 square feet in size.” The term “developer” was not defined.

An anchor tenant that leased shopping center space from the insurance company sold various merchandise, including snacks and other food items. The real estate company and the grocery store alleged that the anchor tenant was selling grocery items in violation of the grocery store's exclusive right, and sued it and the insurance company.

The anchor tenant asked the court for judgment in its favor without a trial. It argued that, as a tenant, it could not be liable under the exclusive right provision of the declaration, because the provision imposed a duty to not compete exclusively on the insurance company.

Decision: The court granted a judgment without a trial in the anchor tenant's favor.

Reasoning: The court pointed out that the clear intent of the exclusive right in the declaration was to prevent stores in the shopping center, other than the grocery store, from selling groceries. The issue, however, was who was liable for competition under the declaration: the anchor tenant, the insurance company, or both.

The language in the declaration stated that the “developer” covenants and agrees to the exclusive right, among other things. But that term was unambiguous as to whether the anchor tenant was considered to be a developer along with, or instead of, the insurance company. The court ruled that the responsibility to comply with the declaration fell to the insurance company alone. The anchor tenant was just the competing store it had impermissibly leased space to.

• Dillon Real Estate Co., Inc., et al. v. American National Insurance Co. and Dollar Tree Stores, Inc., July 2009