The exclusivity lease conundrum

The exclusivity lease conundrum

In a competitive retail environment, retailers at shopping centres such as Pick 'n Pay, Checkers and Shoprite continuously want to protect their turf through exclusivity clauses, but more counters are entering the fray.

While in most cases anchor retailers have leases which ensure them a competitive advantage among competitors, the exclusivity lease environment is changing.

"On new retail developments, Food Lovers (Market) and Spar also insist on some form of protection, in line with PnP (Pick 'n Pay) and Checkers/Shoprite.

"Woolworths, however, normally insists on protection as well, but this is limited to size," says divisional director of strategic retail leasing at Broll Property Group Preston Gaddy.

Grocery anchor tenants implement exclusivity clauses to protect their initial investments in the event of the establishment of the new store - which would effectively prevent future trading and growth.

This has been more evident in the public and legal spat between Shoprite and Game (owned by Massmart).

Shoprite launched a court bid to halt Game stores from selling perishable foods at the 62 170 square metre CapeGate Shopping Centre in the northern suburb of Brackenfell.

Shoprite won an interdict, prohibiting Game stores from selling perishable foods, as the retailer had an exclusivity clause in its 15-year lease agreement with property group Hyprop Investments.

Changing exclusivity clauses

From a clause which has traditionally barred grocery retailers from operating for competition purposes, landlords are now implementing radius clauses. This is where grocery chains establish clauses preventing competitors from extending the same offering within a stipulated radius of the shopping centre.

Gaddy adds: "This was meant to be a 'quid pro quo' for exclusivity to be agreed, but unfortunately not too many landlords and developers have had much success with implementing these restrictions."

Another debate of exclusivity clauses points to the number of retail developments which would not be possible without some sort of exclusivity in the lease.

Without the commitment of the anchor tenant, financial institutions would not have agreed to finance these developments, he explains.

On other front, exclusivity clauses have had a benefit for consumers. Gaddy explains that there are a number of retail developments which would not be possible, "without the inclusion of some form of exclusivity in the lease."

“Lately, we have seen variations to this, particularly in large shopping centre developments where there are two or three (in some cases four), grocery retailers."

“The exclusivities are then limited to these co-anchors, and in certain cases become a co-tenancy provision in the lease - certain grocery retailers are comfortable with trading alongside a specific co-anchor,” he says.

Limited benefits to consumers

The South African Real Estate Investment Trust (Reit) Association says exclusivity clauses are anti-competitive, starving consumers of retail options.

Reit chairman of the legal and competition committee Dov Green says exclusivity clauses are being used by retailers in their fight to restrict each other in market share to the detriment of the consumer.

The Reit Association represents South Africa’s listed Reit sector and includes shopping centre owners.

On the widespread use of clauses, Green says the Reit Association has not lodged a complaint with the Competition Commission - which has greater powers to probe the abuse of exclusivity clauses.

“...Retailers have become a lot more aggressive and confident with regard to the enforcement of these clauses and that is why we would want the commission to take a definitive stance and put an end to the uncertainty,” adds Green.



Denny Crane

Denny Crane
It's not me ... yet. Denny Crane from the TV series Boston Legal. Click on picture if you're not sure who he is!