The Anchor's Exclusive That Wasn't
A 310,000 sq ft grocery-anchored center has a 62,000 sq ft supermarket anchor paying $9.50/sq ft NNN with a use clause and an exclusive prohibiting sale of "prescription pharmaceuticals and full-line grocery" within the center. The anchor's lease has 4 years remaining. A national discount chain wants 28,000 sq ft in the former hardware box and proposes to sell grocery staples and operate a small pharmacy counter. The discount chain's rent would be $19/sq ft NNN - roughly $532,000/year versus the current $266,000 vacancy loss on that space. Your leasing director says the exclusive is "probably unenforceable" and wants to sign. The anchor has been vocal at center events about competition.
1. Evaluate the leasing director's claim that the exclusive is probably unenforceable, and identify the real risk.
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"Probably unenforceable" is a litigation position, not a leasing decision, and it is the wrong frame. The anchor's lease is a contract; the exclusive is presumptively valid unless it is unreasonably broad in scope, duration, or geography, or violates public policy. A prohibition limited to the center, to full-line grocery and pharmacy, for the lease term, is a narrow, facially reasonable covenant. A court might eventually narrow it, but you would be litigating for 18–24 months while the discount chain sits in possession.
The real risk is not the lawsuit itself - it is the injunction. If the anchor obtains a temporary restraining order, the discount chain cannot open, and you have a signed lease with a national tenant you cannot deliver on. That is a damages exposure plus a reputational problem with a tenant class that talks to itself.
Second risk: the anchor's 4-year expiration is your leverage window, not a reason to gamble. Signing now converts a negotiation into a dispute and hands the anchor a grievance right before renewal talks. The $266,000 spread is real, but it is not worth a default.
2. Propose a path that captures the discount chain rent without breaching the anchor lease.
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Three options, in order of preference.
First, negotiate a waiver or modification with the anchor. Approach them before signing, not after. Offer something they value - a rent reduction on renewal, a co-tenancy concession, signage, or an agreement that the discount chain's grocery assortment is capped (e.g., no more than 15% of selling area, no pharmacy). Get the modification in writing and recorded if the lease requires it. Anchors frequently trade exclusivity scope for economics when asked respectfully.
Second, restructure the discount chain's use. If the tenant will accept a prohibition on pharmacy and limit grocery to a defined assortment, the exclusive may not be triggered at all - but read the clause's exact words, since "full-line grocery" and "grocery staples" are different and the determination turns on the lease text, not on intent.
Third, if neither works, decline the deal or defer it until the anchor lease expires. Do not sign and hope. Model the $266,000 against the cost of an injunction, lost anchor renewal, and litigation, and the spread shrinks fast.