On October 21, 2015, the New Jersey Appellate Division affirmed a trial court ruling that a South Jersey landlord did not violate a coffee-related exclusivity provision in its lease with Starbucks when it subsequently rented space in the same strip mall to McDonald’s – another purveyor of coffee products.
In Delco LLC v. Starbucks Corporation, Delco, the owner-operator of a shopping center in Rio Grande, New Jersey had rented space to Starbucks. The Starbucks lease contained an exclusivity clause that essentially barred any other tenant at that shopping center from selling coffee, espresso and tea drinks. However, an exception to this provision was allocated for “any tenant . . . occupying twenty thousand contiguous square feet or more . . . and operating under a single trade name.” Starbucks’ coffee exclusive at the shopping center became an issue when Delco sought to bring in McDonald’s as a tenant, and Starbucks voiced an objection. Though there was no question that McDonald’s sells coffee and tea at its fast food restaurants, Delco envisioned leasing 40,000 square feet of contiguous space to McDonald’s – more than twice the size needed to satisfy the exception to the exclusivity provision under the Starbucks lease. Based upon the clear and unambiguous lease language, the Appellate Division summarily affirmed the trial court’s determination that Starbucks’ objection to the McDonald’s lease lacked any merit, and that Delco was also entitled to attorneys’ fees.
While the Starbucks decision did not establish new law, it is an invaluable reminder for commercial landlords and tenants to carefully negotiate all lease terms, including exclusivity provisions. Particularly on the tenant side, if a party to a lease is concerned about being “the only game in town” – such as Starbucks being the only tenant selling coffee products at a shopping center – then that party must cautiously negotiate and craft the terms that are ultimately memorialized in the governing lease documents.