Strategic Thinking for Leases & How Lawyers Can Help

November 30th, 2017

In the wake of Amazon’s latest acquisition of Whole Foods, the fate of traditional, brick-and-mortar retailers may not be as bleak as it once seemed.  The world’s largest online retailer is facing certain difficulties in the realm of lease agreements, the same kind of difficulties that any tenant may face when entering into such a lease.  Oftentimes clients have a perfect location picked out, with an excellent business and marketing plan worked out, and clients and customers ready to go, however, they get a major surprise when they receive the lease from the Landlord.  Many tenants as well as landlords forget about the implications that a lease agreement holds down the road for future competition of subsequent tenants.

Stores such as Bed Bath & Beyond, Best Buy, and Target all have legal rights to halt certain operations proposed by Amazon by way of Whole Foods markets when it comes to where they may open or what they can do at various locations across the country because of their leasing rights and restrictive covenants in related agreements.

The carving out of certain provisions in leases such is a routine practice in the industry.  Tenants with enough leverage will negotiate with Landlords to have some protections put in place in order to avoid certain competition.  It is common to see proposals of various restrictions, such as no other grocery stores, electronic stores, toy stores, or discount retailers allowed in a mall so long as the tenant is leasing there.  Landlords frequently give up their business rights to substantially alter malls and therefore sacrifice tenant mix – but they do so as part of a careful negotiation.

The main issue that Amazon is facing, however, is that of neighboring retailers having clauses that, although do not bar the retailer completely, substantially limit its capabilities newly offered by Amazon.  Such limitations have the capability of vastly altering, or in some cases, prohibiting, the things that make a company unique.  Though the future for Amazon and Whole Foods is unclear, I think there will be a lesson learned of heightened focus on negotiations in general.

The question remains then, how can retailers adequately protect themselves from the e-commerce giant that is Amazon, or any competitor for that matter?  In general, a lawyer can aid tremendously in the process by providing the know-how, skills, and ultimately the language necessary for such protection.  As evidenced by the above, carefully drafted lease agreements are key and are able to withstand even the biggest and most powerful companies.  In a world where Amazon is seen as a dominant and intimidating player in a multitude of markets, this instance has taught us that companies much smaller can not only survive, but thrive in an environment where physical Amazon stores exist, albeit with adequate lease agreements.

This article was sponsored by Vlodaver Law Offices, LLC, an experienced business solutions and transactions law firm in the Twin Cities. If you would like a free legal consultation, contact us.