As the popularity of e-commerce continues to rise, some retailers are pressured to close brick and mortar stores or convert them into other uses. This trend may affect commercial landlords who must then respond to protect their own rights related to the retail space. Usually it is the commercial lease that will set forth the availability of any relief or protection when a tenant seeks to close its stores, as recently happened in a case involving Starbuck's Teavana.

Some commercial leases have provisions that govern when a tenant may cease or even change their operations. Specifically, commercial leases may include “continuous operations” provisions that prevent a tenant from ceasing or changing operations prior to the expiration of the lease. Commercial landlords are well advised to review their existing leases to ensure that they are protected when faced with a tenant who wishes to cease its operations. Commercial tenants should understand what is allowed under the lease when stores have or will likely become unprofitable or whose continued operations are otherwise undesirable.

In a recent case, Simon Property Group, L.P. (Simon), owner and operator of several shopping malls, filed suit in Indiana against Starbucks Corp. (Starbucks). The case concerned 78 leases for Teavana stores, to which Simon and Starbucks or their affiliates were parties. Each of the leases contained the identical or substantially similar “continuous operations” provision which provided, among other things, that the tenant would occupy the premises and conduct and operate its business during the full lease term. Each of the leases also contained either a specific performance provision or a provision allowing injunctive relief to enforce the obligations of the lease.

The suit arose after Starbucks announced its decision to close its Teavana-branded retail stores, citing declining sales and an increase in the number of unprofitable Teavana stores. The closure was to include the 78 Teavana-branded stores located in Simon's shopping malls, prior to the leases' expiration dates. In addition to the complaint, Simon filed a motion for temporary restraining order and preliminary injunction requesting that the Indiana state court prevent Starbucks from breaching the continuous operations provisions in the leases.

In support of it claims, Simon provided testimony that its tenants depended on the continuous operations provisions in their leases to ensure that all tenants kept their stores open for the benefit of all and that it and all its tenant relied on these provisions. Notably, Starbucks argued that no court had ever entered a preliminary or permanent injunction to specifically enforce a continuous operations provision against a nonanchor tenant extending nationwide, as requested by Simon. While the court found Starbucks' assertion to be true, Simon argued that finding in favor of Starbucks on this matter would render any subsequent attempts to enforce specific performance of its continuous operations provisions against any of its other tenants futile. Simon further argued that Starbucks elected to breach the leases as part of a business decision and not any true threat to its continued operation. The court agreed and ruled in favor of Simon.

In so doing, the court found that Starbucks's closing of the Teavana stores prior to the expiration of the leases was a breach of the leases and that Simon could enforce the leases, including the continuous operations provisions. The court based its decision, in part, upon its conclusion that a ruling that impacts Simon's ability to enforce its continuous operations provision would harm Simon's long-term reliance on tenants remaining for the terms of their leases and, by extension, their ability to maintain the mix of tenants among its shopping malls. In its decision, the court enjoined Starbucks from failing to occupy and conduct business as usual in the leased premises for any of the Teavana stores at any Simon shopping mall, including any failure to be open and operating during normal business hours, as required by the leases.

As the retail sector goes through a transition related to e-commerce, or other factors, commercial landlords should keep in mind the above case and seek to mitigate the risk associated with their own tenants seeking to prematurely shutter their operations. Landlords should consider ahead of time how they will treat those scenarios and whether their existing leases protect them. Landlords should also consider whether the parties to their agreements have agreed that injunctive relief and specific performance are available remedies, whether exclusivity provisions will harm their ability to replace tenants that close operations, and whether provisions like attorney's fees provisions will deter lease breaches.

Steven D. Weber is the founding shareholder of Weber Law in Miami. He represents clients in state and federal courts on issues regarding commercial and residential properties, breaches of contracts, fraud, and other issues.