Use of the Premises

Food Store

The distinction between the terms “delicatessen” and “European-style delicatessen” will be considered here along with some comments on food stores within a specialized food area of a center, as well as on the definitions of “restaurant” and “snack bar.”

Delicatessen

To some, the term “delicatessen” means a “corned beef store” and to others it means a “European-style delicatessen.” Consider the “corned beef store” in the following example:

' as a delicatessen, for the sale, at retail, of hot corned beef on rye or roll, hot pastrami on rye or roll, smoked meat on rye or roll, steak on a bun, side orders of dill pickles, potato salad, coleslaw, knishes, french fries, hot dogs, onion rings, cabbage rolls, hamburgers and the following dispensed drinks: carbonated soft drinks, tea, coffee and milk; all prepared for immediate consumption whether on or off the Premises. [The landlord must ensure that the following wording appears in order to avoid any breach of any restrictive covenant given by the landlord to another tenant in the center]. Tenant covenants and agrees that it will not cause, suffer or permit within all or any part of the Premises the sale, at retail, of [here, list any items which are or may be in doubt]. For the purposes of this Lease, the term “hamburger” shall mean a cooked, chopped beef, circular or oval, flattened patty, weighing not more than five ounces and served between two pieces of bread or in a bun.

Now consider the “European-style delicatessen” in the following example:

' as a European-style gourmet-style delicatessen such as is operated by Tenant as of the date of this Lease in its other location at [address], under the trade name and style of [name], including the sale, at retail, of hand-cut fresh and smoked meat on a non-self-serve basis, cabbage rolls [here, list other specific items to be sold], fruit salad, coleslaw, potato salad, imported cheeses and prepackaged imported European chocolates.

As ancillary to such principal use, Tenant shall have the right: (i) to sell, at retail, individual pieces of selected fancy fresh fruit intended for immediate consumption, individual cans or bottles of soft drinks intended for immediate consumption, and individual pieces of European-type pastry intended for immediate consumption; and (ii) to operate a stand-up fast food counter not to exceed [' ] feet in length for the sale, at retail, of such European-style delicatessen as is sold in the other part of the Premises and which is prepared solely for immediate consumption whether on or off the Premises, including the sale, at retail, of the following individually dispensed drinks: carbonated soft drinks, milk, hot chocolate, tea and coffee.

[The landlord, however, must ensure that the following wording appears in order to avoid any breach of a restrictive covenant given by the landlord to another tenant in the center]. Without in any way limiting or affecting the interpretation or generality of the foregoing,
Tenant covenants and agrees that it will not cause, suffer or permit within any part of the Premises the sale of: [here, list all items that should not be sold in order to avoid any ambiguity].

Tenant covenants that at all times throughout the Term the business to be operated on the Premises shall be and appear to be that of a European-style delicatessen for the sale, at retail, of a wide variety of European-style delicatessen items as set forth above for consumption on or off the Premises to be sold from the fast food counter in the Premises as permitted above.

The preceding clause has been drafted to take into consideration any restrictions on leasing set out in the supermarket lease, if any, or for that matter any other food restrictions.

The difficulty with the term “deli” by itself, without any further description, is that it does not appear to have any set definition. Both the tenant and landlord could end up in court arguing over the interpretation of the term. The court then has a big problem trying to determine what the parties intended to mean when they negotiated the lease.

A 1998 case, Showmart Management Ltd. v. 853436 Ontario Ltd., (1998), 18 R.P.R. (3d) 128, 79 A.C.W.S. (3d) 155 (Ont. Ct. (Gen. Div.)), is illustrative. The landlord (Showmart) and the tenant (853436), which carried on business as Features Caf' (Features), signed a lease in which Features leased ground floor space in the “Showmart Centre” [sic] for the sale of “products found in a delicatessen.” However, the term “delicatessen” was not defined in the lease.

There was also a restrictive covenant in the lease whereby the landlord agreed that it would “not lease or permit to be used any space on the main or ground floor level of the Retail Component ' for the purposes of a restaurant of similar type and nature to be operated on the Demised Premises, save and except for the Japanese Restaurant and the Holiday Inn Restaurant.”

The landlord attempted to obtain Features' consent to lease to a bistro and other restaurants on the ground level, but Features refused.

The landlord's position was that the restrictive covenant only prohibited use by a restaurant which was similar to a retail delicatessen. Features, on the other hand, claimed that it had obtained oral assurances from the landlord that there would not be any other restaurants in the building. The question before the court was, how wide was the wording of the restrictive covenant?

The Ontario Court (General Division) held that the landlord was not prevented from renting premises on the ground level to other tenants who would operate restaurants, unless such operations were similar to a retail delicatessen use. The court examined a dictionary definition of “delicatessen,” which defined it as “cooked or preserved foods, cooked meats, canned goods, salads, cheeses, pickles, etc.” and “a store that sells such foods.” The court held that Features' menu indicated that there were only a few items which went beyond the typical delicatessen food, and that therefore, the logical interpretation of the restrictive covenant was that the landlord was prohibited from leasing space to any restaurant specializing in delicatessen foods. The court said that the type of menu contemplated by the “Latin bar and bistro” would not fall within the restrictive covenant wording.

The point for the landlord and the tenant is ' take the time to set out expressly what is, and what is not, to be included in the use clause. Settle it first, so you do not have to fight about it later!

Food Court

It is becoming more and more common for landlords to set aside a portion of the center specifically for the sale of food in a number of boutique-like shops. This area is sometimes referred to as a “food court” or “food fair” or “food mart.”

With respect to the drafting of use clauses for various food stores within a food court, food fair or food mart within the center, the landlord has to be careful to avoid any overlap of conflicting food uses. The following general comments should be considered:

• If the tenant is to be a stand-up fast food snack bar without seating or table accommodation, then that must be expressly stated.
• If the tenant has the right to sell hamburger, does that mean “chopped meat” or “hamburger” (as previously defined)?
• If the sale of drinks is permitted, specify whether it is the sale of dispensed soft drinks (not in bottles or cans), or whether they are to be carbonated or non-carbonated. Will tea, coffee, milk, hot chocolate or alcoholic beverages be included?
• Specify whether the food is for immediate consumption and whether it is to be eaten on or off the premises.
• If ice cream is to be sold, is the intent that the tenant also has the right to sell gelato, yogurt or ice milk, a form of ice cream with less that 10% butter fat?
• Avoid generalities such as “dairy products.” Be specific and determine what items are intended to be sold and how they are to be sold. Merely to specify the sale of “food” or “vegetables” or “milk” is not sufficient as the purpose of the store may not be for a food or vegetable store or for a jug milk store.

Restaurant

If the tenant wants to operate, for example, a “restaurant,” the landlord has to put its mind to the following considerations. Is it intended to be a family restaurant serving all ages? Is it a specialty restaurant with a particular main menu item, for example, hamburgers? Is it a fast food outlet? Is it a cafeteria? A coffee shop? Will there be tables, table service, tablecloths, waiter, waitresses? Will it be self-serve? Will there be stand-up with no seating accommodation? What items of food are intended to be sold? Is the menu to be attached? The landlord must carefully examine any restrictions it has given to any tenant in the center when drafting the use clause and, if necessary, expressly prohibit the sale of certain food items in the lease. If the landlord's standard form of lease prohibits the sale of food, it will, of course, have to be amended for any particular food tenant.

Will the food be prepared on the premises for consumption on the premises? Will there be a take-out service? What will it sell? Is there any size limitation on the take-out area? Will it be offering entertainment, live or otherwise? If so, what kind? Do the local by-laws prohibit certain types of entertainment? Will the landlord want to approve each entertainment and, in doing so, have the right to withhold its consent unreasonably? Will it be selling alcoholic beverages? If so, the landlord should specify that the tenant obtain the necessary permits, approvals and consent from all authorities. The landlord should make sure that the sale of alcoholic beverages is included in the tenant's gross revenue. What other types of beverages are intended to be sold? Is there any basement area? If so, the landlord should specify for what it is to be used. Local by-laws, for example, may not permit cooking in a basement area.

The landlord must distinguish between the principal use and the ancillary use. For example, the landlord may want the sale of alcoholic beverages to be an ancillary and not a principal use of the premises. What else does the tenant intend to do in the restaurant? Is it to be used for video games? If so, does the landlord want any? If it does, how many? Will it be permitted to sell lottery tickets? If so, the landlord wants the sales (and the tenant wants only the commissions) to form part of the tenant's gross revenue. What about the sale of toys or souvenirs? If permitted, these sales should be included in the tenant's gross revenue. All these points can be resolved to the satisfaction of both the landlord and the tenant if they are negotiated at the very outset.

The bottom line is that the landlord should not be satisfied with the term “restaurant.” It is too broad. The tenant, to illustrate the items it intends to sell, may wish to attach a menu indicating those items, but it should also seek to add to the lease that it may sell other items as it from time-to-time would like to add to the menu. The landlord, if it has given food restrictions to other tenants in the center, cannot afford to give this type of wording as the restaurant tenant may begin to sell, for example, pizza, in contravention of the landlord's commitment to another pizza operator.

A landlord should attempt to delineate the type of food being sold. For example, “French,” “Italian” or “Greek.” A tenant should attempt to modify any delineation by the addition of the word “style” so that it is, for example, “French-style,” which is much broader.

Supermarket

The phrase “supermarket” is broader than the term “food supermarket.” Generally, a landlord will want to insert a clause limiting the non-food items within the supermarket. Such a use clause is practically all-encompassing, and the landlord should ensure that, if it is required to give any restrictive covenant to any other tenant in the shopping center, such covenant should expressly exclude any application to the supermarket. A landlord may want to prohibit automated teller machines within or on the exterior of the supermarket premises.

Conclusion

It is obvious that use clauses are a vital part a shopping center lease and can affect the business of both the landlord and tenant, even after their relationship has terminated. It is, therefore, worth taking the time to draft them carefully.

Harvey M. Haber, Q.C., a member of this newsletter's Board of Editors, is a partner in Toronto's Goldman Sloan Nash & Haber LLP. This excerpt is reproduced from Shopping Centre Leases, Second Edition, Editor-in-Chief Harvey M. Haber, Q.C. (978-0-88804-447-8), with the permission of Canada Law Book, a division of Thomson Reuters Canada Limited. Adapted and revised from The Commercial Lease ' A Practical Guide, 4th ed. (Aurora, Canada (Aurora, Canada Law Book Inc., 2004).

The use of the premises is of paramount importance to both the landlord and the tenant. As discussed in Part One last month, the tenant wants to sell the broadest possible scope of merchandise, in order to carry on its business. On the other hand, the landlord wants to limit the clause to avoid any overlap of uses as well as any breach of a restrictive covenant given to another tenant in its shopping center. Because the use clause will govern the use of the premises in the event of an assignment or a sublease of the premises (unless both the landlord and the tenant mutually agree to a change in the use clause), its impact will continue to affect both parties in the event the tenant wishes to sell the business.

As mentioned in Part One, today's retailers expand, contract and metamorphose, making it difficult to determine what the store is and to define what it sells. For example, variety stores are becoming junior department stores; junior department stores are becoming department stores; and supermarkets are becoming combination food and general merchandise stores. In addition, there is “hybrid retailing,” where a tenant sells in its premises goods that are entirely unrelated to one another (such as food and clothing) and, of course, there is the “warehouse outlet,” which sells everything imaginable at very competitive prices through large volume purchasing. The recent challenging economic times have also created a niche for super discounted items, often referred to as “dollar stores,” and many landlords are eager to include them in their shopping centers.

Part One discussed some of the issues to consider when drafting clauses for drug stores, snack bars, financial institutions and department stores. Part Two herein addresses food stores, restaurants and supermarkets.

Food Store

The distinction between the terms “delicatessen” and “European-style delicatessen” will be considered here along with some comments on food stores within a specialized food area of a center, as well as on the definitions of “restaurant” and “snack bar.”

Delicatessen

To some, the term “delicatessen” means a “corned beef store” and to others it means a “European-style delicatessen.” Consider the “corned beef store” in the following example:

' as a delicatessen, for the sale, at retail, of hot corned beef on rye or roll, hot pastrami on rye or roll, smoked meat on rye or roll, steak on a bun, side orders of dill pickles, potato salad, coleslaw, knishes, french fries, hot dogs, onion rings, cabbage rolls, hamburgers and the following dispensed drinks: carbonated soft drinks, tea, coffee and milk; all prepared for immediate consumption whether on or off the Premises. [The landlord must ensure that the following wording appears in order to avoid any breach of any restrictive covenant given by the landlord to another tenant in the center]. Tenant covenants and agrees that it will not cause, suffer or permit within all or any part of the Premises the sale, at retail, of [here, list any items which are or may be in doubt]. For the purposes of this Lease, the term “hamburger” shall mean a cooked, chopped beef, circular or oval, flattened patty, weighing not more than five ounces and served between two pieces of bread or in a bun.

Now consider the “European-style delicatessen” in the following example:

' as a European-style gourmet-style delicatessen such as is operated by Tenant as of the date of this Lease in its other location at [address], under the trade name and style of [name], including the sale, at retail, of hand-cut fresh and smoked meat on a non-self-serve basis, cabbage rolls [here, list other specific items to be sold], fruit salad, coleslaw, potato salad, imported cheeses and prepackaged imported European chocolates.

As ancillary to such principal use, Tenant shall have the right: (i) to sell, at retail, individual pieces of selected fancy fresh fruit intended for immediate consumption, individual cans or bottles of soft drinks intended for immediate consumption, and individual pieces of European-type pastry intended for immediate consumption; and (ii) to operate a stand-up fast food counter not to exceed [' ] feet in length for the sale, at retail, of such European-style delicatessen as is sold in the other part of the Premises and which is prepared solely for immediate consumption whether on or off the Premises, including the sale, at retail, of the following individually dispensed drinks: carbonated soft drinks, milk, hot chocolate, tea and coffee.

[The landlord, however, must ensure that the following wording appears in order to avoid any breach of a restrictive covenant given by the landlord to another tenant in the center]. Without in any way limiting or affecting the interpretation or generality of the foregoing,
Tenant covenants and agrees that it will not cause, suffer or permit within any part of the Premises the sale of: [here, list all items that should not be sold in order to avoid any ambiguity].

Tenant covenants that at all times throughout the Term the business to be operated on the Premises shall be and appear to be that of a European-style delicatessen for the sale, at retail, of a wide variety of European-style delicatessen items as set forth above for consumption on or off the Premises to be sold from the fast food counter in the Premises as permitted above.

The preceding clause has been drafted to take into consideration any restrictions on leasing set out in the supermarket lease, if any, or for that matter any other food restrictions.

The difficulty with the term “deli” by itself, without any further description, is that it does not appear to have any set definition. Both the tenant and landlord could end up in court arguing over the interpretation of the term. The court then has a big problem trying to determine what the parties intended to mean when they negotiated the lease.

A 1998 case, Showmart Management Ltd. v. 853436 Ontario Ltd., (1998), 18 R.P.R. (3d) 128, 79 A.C.W.S. (3d) 155 (Ont. Ct. (Gen. Div.)), is illustrative. The landlord (Showmart) and the tenant (853436), which carried on business as Features Caf' (Features), signed a lease in which Features leased ground floor space in the “Showmart Centre” [sic] for the sale of “products found in a delicatessen.” However, the term “delicatessen” was not defined in the lease.

There was also a restrictive covenant in the lease whereby the landlord agreed that it would “not lease or permit to be used any space on the main or ground floor level of the Retail Component ' for the purposes of a restaurant of similar type and nature to be operated on the Demised Premises, save and except for the Japanese Restaurant and the Holiday Inn Restaurant.”

The landlord attempted to obtain Features' consent to lease to a bistro and other restaurants on the ground level, but Features refused.

The landlord's position was that the restrictive covenant only prohibited use by a restaurant which was similar to a retail delicatessen. Features, on the other hand, claimed that it had obtained oral assurances from the landlord that there would not be any other restaurants in the building. The question before the court was, how wide was the wording of the restrictive covenant?

The Ontario Court (General Division) held that the landlord was not prevented from renting premises on the ground level to other tenants who would operate restaurants, unless such operations were similar to a retail delicatessen use. The court examined a dictionary definition of “delicatessen,” which defined it as “cooked or preserved foods, cooked meats, canned goods, salads, cheeses, pickles, etc.” and “a store that sells such foods.” The court held that Features' menu indicated that there were only a few items which went beyond the typical delicatessen food, and that therefore, the logical interpretation of the restrictive covenant was that the landlord was prohibited from leasing space to any restaurant specializing in delicatessen foods. The court said that the type of menu contemplated by the “Latin bar and bistro” would not fall within the restrictive covenant wording.

The point for the landlord and the tenant is ' take the time to set out expressly what is, and what is not, to be included in the use clause. Settle it first, so you do not have to fight about it later!

Food Court

It is becoming more and more common for landlords to set aside a portion of the center specifically for the sale of food in a number of boutique-like shops. This area is sometimes referred to as a “food court” or “food fair” or “food mart.”

With respect to the drafting of use clauses for various food stores within a food court, food fair or food mart within the center, the landlord has to be careful to avoid any overlap of conflicting food uses. The following general comments should be considered:

• If the tenant is to be a stand-up fast food snack bar without seating or table accommodation, then that must be expressly stated.
• If the tenant has the right to sell hamburger, does that mean “chopped meat” or “hamburger” (as previously defined)?
• If the sale of drinks is permitted, specify whether it is the sale of dispensed soft drinks (not in bottles or cans), or whether they are to be carbonated or non-carbonated. Will tea, coffee, milk, hot chocolate or alcoholic beverages be included?
• Specify whether the food is for immediate consumption and whether it is to be eaten on or off the premises.
• If ice cream is to be sold, is the intent that the tenant also has the right to sell gelato, yogurt or ice milk, a form of ice cream with less that 10% butter fat?
• Avoid generalities such as “dairy products.” Be specific and determine what items are intended to be sold and how they are to be sold. Merely to specify the sale of “food” or “vegetables” or “milk” is not sufficient as the purpose of the store may not be for a food or vegetable store or for a jug milk store.

Restaurant

If the tenant wants to operate, for example, a “restaurant,” the landlord has to put its mind to the following considerations. Is it intended to be a family restaurant serving all ages? Is it a specialty restaurant with a particular main menu item, for example, hamburgers? Is it a fast food outlet? Is it a cafeteria? A coffee shop? Will there be tables, table service, tablecloths, waiter, waitresses? Will it be self-serve? Will there be stand-up with no seating accommodation? What items of food are intended to be sold? Is the menu to be attached? The landlord must carefully examine any restrictions it has given to any tenant in the center when drafting the use clause and, if necessary, expressly prohibit the sale of certain food items in the lease. If the landlord's standard form of lease prohibits the sale of food, it will, of course, have to be amended for any particular food tenant.

Will the food be prepared on the premises for consumption on the premises? Will there be a take-out service? What will it sell? Is there any size limitation on the take-out area? Will it be offering entertainment, live or otherwise? If so, what kind? Do the local by-laws prohibit certain types of entertainment? Will the landlord want to approve each entertainment and, in doing so, have the right to withhold its consent unreasonably? Will it be selling alcoholic beverages? If so, the landlord should specify that the tenant obtain the necessary permits, approvals and consent from all authorities. The landlord should make sure that the sale of alcoholic beverages is included in the tenant's gross revenue. What other types of beverages are intended to be sold? Is there any basement area? If so, the landlord should specify for what it is to be used. Local by-laws, for example, may not permit cooking in a basement area.

The landlord must distinguish between the principal use and the ancillary use. For example, the landlord may want the sale of alcoholic beverages to be an ancillary and not a principal use of the premises. What else does the tenant intend to do in the restaurant? Is it to be used for video games? If so, does the landlord want any? If it does, how many? Will it be permitted to sell lottery tickets? If so, the landlord wants the sales (and the tenant wants only the commissions) to form part of the tenant's gross revenue. What about the sale of toys or souvenirs? If permitted, these sales should be included in the tenant's gross revenue. All these points can be resolved to the satisfaction of both the landlord and the tenant if they are negotiated at the very outset.

The bottom line is that the landlord should not be satisfied with the term “restaurant.” It is too broad. The tenant, to illustrate the items it intends to sell, may wish to attach a menu indicating those items, but it should also seek to add to the lease that it may sell other items as it from time-to-time would like to add to the menu. The landlord, if it has given food restrictions to other tenants in the center, cannot afford to give this type of wording as the restaurant tenant may begin to sell, for example, pizza, in contravention of the landlord's commitment to another pizza operator.

A landlord should attempt to delineate the type of food being sold. For example, “French,” “Italian” or “Greek.” A tenant should attempt to modify any delineation by the addition of the word “style” so that it is, for example, “French-style,” which is much broader.

Supermarket

The phrase “supermarket” is broader than the term “food supermarket.” Generally, a landlord will want to insert a clause limiting the non-food items within the supermarket. Such a use clause is practically all-encompassing, and the landlord should ensure that, if it is required to give any restrictive covenant to any other tenant in the shopping center, such covenant should expressly exclude any application to the supermarket. A landlord may want to prohibit automated teller machines within or on the exterior of the supermarket premises.

Conclusion

It is obvious that use clauses are a vital part a shopping center lease and can affect the business of both the landlord and tenant, even after their relationship has terminated. It is, therefore, worth taking the time to draft them carefully.

Harvey M. Haber, Q.C., a member of this newsletter's Board of Editors, is a partner in Toronto's Goldman Sloan Nash & Haber LLP. This excerpt is reproduced from Shopping Centre Leases, Second Edition, Editor-in-Chief Harvey M. Haber, Q.C. (978-0-88804-447-8), with the permission of Canada Law Book, a division of Thomson Reuters Canada Limited. Adapted and revised from The Commercial Lease ' A Practical Guide, 4th ed. (Aurora, Canada (Aurora, Canada Law Book Inc., 2004).