Can multinational corporations end their commercial leases early? In July 2017 Starbucks announced that it would be closing its 379 Teavana stores due to poor performance, despite that their leases had not yet expired. Simon Property Group, the landlord for 77 of the Teavana locations in Simon malls, sought an injunction against Starbucks to prohibit the corporation from “shirking its contractual obligations at the expense of Simon’s shopping centers and the dozens of communities they serve and support.”[1] Simon argued that Starbuck’s acts could set a harmful precedent that could create a ripple effect of other stores ending their leases early.
Although Teavana stores were underperforming, Starbucks, unlike other small retailers who suffer from financial hardship, had the means to restructure or rebrand the Teavana stores to bring in more business and foot traffic. The decision of the Indiana judge in November who agreed with Simon, fortified the rights of landlords. “Lawyers say the suit is a rare instance of a mall landlord actually enforcing language that’s common in leases spelling out options for closing stores, and the fact that a judge ruled in favor of the landlord likely means more landlords will follow in Simon’s footsteps, should their tenants try to close shop prior to the end of a lease.”[2]
The companies agreed to settle this week, however how will this impact litigation and landlords in the future? Online shopping is creating greater competition to brick-and-mortar retailers. Unfortunately, this means that malls are seeing less foot traffic and more retailers are having to close their store fronts. Due to the current retail environment, landlords should ensure their leases protect their interests in case tenants are unable to fulfil the term of the lease. The judge shed light on how a court may rule in favor for the landlord, particularly when the tenant is a large multinational corporation that is not going out of business.
For future lease agreements, landlords and tenants should be conscientious and vigilant about what terms are included in the lease. The negotiation stage is very important as it gives both parties the opportunity to protect their interests and avoid future conflicts and litigation.
[1] Holden, R. (Jan. 17, 2018) “Starbucks Settles with Simon.” Forbes. Available at: https://www.forbes.com/sites/ronaldholden/2018/01/17/starbucks-settles-with-simon/#6274c1ae7152. Accessed on Jan. 19, 2018.
[2] McIntyre, A. (Jan. 19, 2018) “Simon-Starbucks Case May Give Landlords A Legal Roadmap.” Law360. Available at: https://www.law360.com/realestate/articles/1002744/simon-starbucks-case-may-give-landlords-a-legal-roadmap. Accessed on Jan. 19, 2018.