Tenant’s Duty to Pay Extra Rent for Opening Competing Business Covers Future Affiliates

What Happened: A lease required restaurant corporation tenant Crab House Ltd. to pay additional rent if it or any “affiliated company” were to open a competing business within a five-mile radius. A couple of years later, Crab House was acquired by Landry’s Seafood Restaurants. Landry’s opened a seafood restaurant within the five-mile radius, and the landlord sued for $2.5 million in extra rent. Landry’s defense: The lease restriction on “affiliated companies” applied only to companies affiliated with Crab House at the time the lease was signed. And Landry’s didn’t acquire Crab House until after that date.

Ruling: The New Jersey federal court sided with the landlord and refused to toss the case for additional rent.  

Reasoning: This case was strictly a matter of lease interpretation, specifically the meaning of the term “affiliated company.” Although there was no definition in the lease, it was clear that the parties’ intent was for the restriction to cover future affiliates, according to the court. Exhibit A: Language in the clause stated that the duty to pay additional rent didn’t apply to “any parent, subsidiary or affiliated or controlled company of [Crab House] . . . existing and open for business as of the date of this Lease” (emphasis added). An exception carving out affiliates existing as of the lease date would have only been necessary if the obligation to pay additional rent was intended to apply to Crab House’s future affiliates, the court concluded.

• Pier 541 LLC v. Crab House, Inc., 2021 U.S. Dist. LEXIS 185388, 2021 WL 4438128