Ricochet News

Remedies to enforce exclusivity: Exclusive use and lease clauses in commercial lease agreements

By Bardine Hall (BA LLB) - Jan 10, 2017
Remedies to enforce exclusivity: Exclusive use and lease clauses in commercial lease agreements

Two important clauses in a lease agreement usually provide for exclusivity of tenants in retail complexes, namely the use clause and the exclusive clause. The use clause usually restricts the purpose for which a tenant may use a space. The exclusive clause is a promise by the landlord that only the tenant and no one else in the retail complex may engage in a particular type of business.

The Competition Commission previously decided not to refer complaints against exclusive leases in the retail industry for a ruling due to a lack of evidence that the exclusive leases substantially lessened competition. (Edition 51, January 2015, Official Newsletter of the Competition Commission, p3).

The recent Constitutional Court judgment in the matter of Masstores (Pty) Ltd vs Pick ‘n Pay Retailers (Pty) Ltd [2016] ZACC 42, placed exclusive lease provisions in the spotlight again. In this matter the Court did not focus on the provisions of the Competition Act but was concerned with the correct remedy to enforce an exclusive clause in a lease agreement.

One tenant attempted to enforce its contractual exclusivity right (granted to it by the landlord) against another tenant in the complex. There was no contractual relationship between the two tenants.

The Court confirmed that mere interference with a contractual right of exclusivity by a third party who is not a party to that contract is not wrongful. There is no general legal duty on third parties not to infringe contractually derived exclusive rights of others. Third parties must nevertheless exercise their own contractual rights in a reasonable manner.

Remedies to enforce exclusivity rights

It is clear then, the remedy for protection and enforcement of exclusivity rights lies in the contractual relationship. Well drafted use and exclusive lease clauses are crucial to protecting and balancing the interests of both the landlord and the tenant.

To avoid costly disputes and litigation the parties should carefully draft specific use and exclusive clauses in lease agreements and may include specific remedies in the lease agreement if these provisions are breached. Remedies should address damages and enforcement.

It may be difficult to calculate actual damages and therefore the parties might consider agreeing on liquidated damages, rent abatement, or termination provisions. Carefully worded clauses will assist in avoiding disputes.

At Goldberg & de Villiers Inc, the Directors in our Property Law Department, namely Adri Ludorf, Tracey Watson-Gill and Nicolas Mitchell, assisted by Bardine Hall will gladly assist you with any Property Law-related needs.