Draft ‘Grill Shop’ Restriction Carefully

When negotiating a lease with a prospective tenant that plans to operate a restaurant it considers to be a “grill shop,” the tenant may demand that you agree not to rent space in your center to another grill shop. But if you agree to such a restriction, you may be unable to rent space to more potential tenants than you realize. And, because the term grill shop is vague, you may end up in a dispute with your tenant over what type of tenant the restriction prevents you from renting to, warns Chicago attorney Carole L. Pechi.

For example, you may think that a grill shop restriction only prevents you from renting to a restaurant that's an actual grill shop, while the tenant may think that the restriction prevents you from renting to any restaurant that serves grilled items.

‘Grill Shop’ Restriction Was Ambiguous

Look what happened to a North Carolina owner: A lease clause said that the owner couldn't “lease shop space to another grill or sandwich shop.” The owner later rented space to a barbecue restaurant that served hamburgers; chicken salad sandwiches; bacon, lettuce, and tomato sandwiches; and several grilled items. The tenant sued the owner, claiming that the owner had violated the restriction by renting space to another restaurant that served grilled items and sandwiches. The owner argued that the restriction only prevented it from renting to actual grill or sandwich shops and allowed it to rent to restaurants that sold grilled items or sandwiches.

A North Carolina appeals court ruled that the lease clause was ambiguous and sent the case to a jury to decide the issue. It noted that the restriction could be interpreted to support both the tenant's and owner's arguments [Taha v. Thompson, 1995].

Add Two Limits to Grill Shop Restriction

Since most restaurants use some form of grilling when preparing food, your safest strategy is never to agree to a grill shop restriction, advises Pechi. But if you're dealing with a strong tenant that demands some type of grill shop restriction in its lease, then set it up this way: Rather than agreeing not to rent space to a grill shop, agree not to rent space to another restaurant whose “primary use” will be the sale of “entrée” items that are prepared on a grill, says Pechi. And define what primary use means, she adds.

Wording the restriction like that limits it in two important ways. First, by saying that you won't rent to another restaurant whose primary use will be the sale of items prepared on a grill, you won't be barred from renting space to another restaurant that incidentally sells grilled items. Second, by saying that you won't rent to another restaurant that prepares entrée items on a grill, you won't be barred from renting space to a tenant that prepares, for example, appetizers, on a grill.

Here's Model Language you can adapt and add to the lease if the tenant agrees to limit the restriction:

Model Lease Language

Landlord will not rent space in the Shopping Center to another restaurant whose primary use will be the sale of entrée items that are prepared on a grill (“Exclusive Items”). For purposes of this Paragraph, “primary use” means that more than [insert #, e.g., fifty (50)]% of such other restaurant's gross sales are derived from the sale of the Exclusive Items.

Practical Pointer: To further protect your interests, state that the restriction will be null and void if the tenant stops operating or selling grilled entrée items; violates the lease; or assigns the lease or sublets its space, suggests Pechi.

Insider Source

Carole L. Pechi, Esq.: Of Counsel, Holland & Knight, LLP, 131 S. Dearborn St., 30th Fl., Chicago, IL 60603; (312) 263-3600; carole.pechi@hklaw.com.