‘Mr Price’ found to be in Breach of Exclusivity Covenant

The Court of Appeal recently upheld a High Court decision concerning the interpretation of a restrictive covenant in a lease in relation to what might constitute “groceries”. This decision will be of particular interest to retail landlords and tenants, particularly those who occupy or own units in retail parks and shopping centres.

Case Overview

The court upheld the High Court’s decision that Dafora Unlimited Company was in breach of its lease at Barrow Valley Retail Park on the Carlow/Laois border by selling certain items from its Mr Price store in the centre. This was because there is a clause, or restrictive covenant, in the lease that prohibits a competing business from selling goods defined as groceries alongside the anchor tenant, Dunnes Stores.

In his High Court judgment, Mr Justice Mark Sanfey made several declarations and found that “groceries”, as contained in the lease, “extends beyond food or food products” and include “non-durable consumable household items which are purchased frequently”.

Definition of a Restrictive Covenant

A restrictive covenant is a clause in a lease that typically restricts the land affected from being used for a particular purpose and limits certain actions by the tenant.

Case Background

Conflict arose over the interpretation of a certain restrictive covenant in Mr Price’s lease, which stemmed from the anchor tenant, Dunnes Stores’ requirements at Barrow Valley Retail Park in Carlow. Dunnes Stores insisted that leases for other tenants include clauses prohibiting:

1. The use of premises as a supermarket or similar establishment selling food items;
2. The sale of alcoholic beverages;
3. Displaying or selling any food products or groceries.

Dunnes Stores alleged that Mr Price violated this covenant by selling items such as personal care items and cleaning products. They sought a court order to stop Mr Price from selling these products. Mr Price contended that these items did not fall under the category of ‘’food, food products or groceries’’.

High Court Proceedings

The High Court considered expert testimony from both sides and referenced interpretation principles from the Supreme Court Case The Law Society of Ireland v The Motor Insurers Bureau of Ireland. The court found that the restrictive covenant’s context was crucial, interpreting ‘’groceries’’ to include frequently purchased non-durable household items beyond the scope of food products.

Court of Appeal Decision

Mr Price appealed the High Court decision on several grounds. However, The Court of Appeal upheld the High Court’s interpretation, putting emphasis on the context in which the covenants were negotiated. It rejected Mr Price’s  claim regarding the trial judge’s preference for Dunnes Stores expert evidence, further affirming the judge’s discretion. The Court of Appeal concluded by specifying the included products must also be ‘’non-durable’’.

Conclusion

The outcome of this case is good news for occupational tenants, landlords and anchor tenants who have negotiated exclusivities into their leases as they illustrate that such arrangements will be enforced by the courts. This case highlights the necessity of meticulously drafting exclusivity agreements, restrictive covenants, and their defined terms due to the apparent substantial economic impact these clauses can have on lease parties. Restrictive covenants should be carefully considered by tenants and landlords alike. Furthermore, it is also of significant interest to all commercial parties, due to the fact it is the epitome of the difficulties that can arise if significant terms are not precisely defined in a contract/lease.

For further information on this topic, please contact Brendan Sharkey at bsharkey@reddycharlton.ie