It is not uncommon in the retail sector, particularly in shopping centres, for tenants to demand from landlords an undertaking that the landlord will not lease neighbouring premises in its ownership to a business which might compete with, or otherwise impact on, the tenant's business. In such cases, there is an obvious tension between the landlord's desire not to overly restrict its right to lease and the tenant's desire to secure that the extent of the restriction will protect its interests.
In a recent Scottish case, Ralph Lauren has discovered how important it is that a tenant's intentions are properly expressed in such an undertaking.
A landlord became Ralph Lauren's landlord in 2010. Ralph Lauren made it known to the landlord that it was, and would continue to be, important to them that the high-end fashion retail "area" within the Merchant City was maintained. Indeed, this had been a precondition of their agreeing to take a lease of the premises in the first place. The landlord provided Ralph Lauren with an undertaking that they would grant "first lettings" of the unit adjacent to Ralph Lauren only to "high quality fashion retailers". The undertaking was provided by way of a back letter, which also contained a condition that any tenant would be approved in advance by Ralph Lauren.
The landlord proposed to lease the adjacent unit to a hairdressing business. They sought Ralph Lauren's approval to the letting, but Ralph Lauren refused on the ground that the hairdresser was not a high quality fashion retailer. Notwithstanding Ralph Lauren's refusal, the landlord proposed to let the unit to the hairdresser.
Ralph Lauren sought interim interdict to prevent the landlord from letting the unit to the hairdresser.
The landlord argued that Ralph Lauren's approval was not required in terms of the back letter because the hairdresser was not a retailer. Ralph Lauren contended that the objective purpose of the undertaking was to afford them a "reasonable veto" of prospective tenants and that the landlord's interpretation would permit them to lease the premises to anyone who did not sell goods. This, they claimed, would be an absurd consequence which would "not accord with the reasonable expectations of honest, sensible businessmen, having regard to the context in which the undertaking was given".
It was held that the terms of the undertaking were clear. The landlord did not "restrict themselves in any way concerning the grant of a first letting to non-retailers… whether at the high fashion end of the market or much lower down the scale". The court held that if Ralph Lauren had wished to prevent such a letting, it would have been easy to address it in the undertaking, but they had not done so.
This case is another clear demonstration of the need to be precise in the expression of intentions in contracts when the intentions are critical to the commercial interests of one of the parties. In this case the fault was simple: reference to "fashion retailers". If Ralph Lauren wanted a veto on the quality of any business which might want to lease the adjacent premises, it would have been easy for the undertaking to have been expressed by reference to, for example, "high quality businesses" or similar.