Interpreting Restrictive Covenants in Leases in the Food and Grocery Sector

In a recent case[1], Dunnes sought an order from the High Court to enforce a restrictive covenant preventing Mr Price from selling “food, food products or groceries” from a retail unit at Barrow Valley Retail Park in Carlow.

Mr Price took a lease of a unit from the owner of the Retail Park in 2020. Dunnes claimed that as part of the deal for it to become the anchor tenant, an exclusivity clause was contained in lease agreements with the holders of other units in the Retail Park to prevent them from being in competition with the supermarket chain. Dunnes claimed that in breach of the terms of its lease, Mr Price had been selling items from its outlet in the Retail Park, namely groceries, that it was not entitled to sell. The lease to Mr Price included restrictive covenants as follows:

1. Not to use or permit or suffer to be used the Demised Premises or any part thereof as a supermarket, hypermarket, grocery, discount food store, frozen food outlet, mini food market, convenience store or any similar premises for the sale of any food, food products or groceries;
2. Not to sell or display or permit or suffer to be sold or displayed any food, food products or groceries;
   
3. Not to sell or permit or suffer to be sold wine, beer or spirits.

Dunnes claimed the restrictive covenants prevented any other leaseholder in the Retail Park from operating as a:

• Supermarket
• Hypermarket
• Grocery
• Discount food store
• Frozen food outlet
• Mini food market
• Convenience store, or
• Any similar premises for the sale of any food, food products or groceries

The lease contained no definition of “groceries”.

What was meant by “groceries”?

The dispute between the parties was largely confined to what items the word “groceries” included for the purposes of the lease in question. Extensive evidence was adduced by both Dunnes and Mr Price in this regard.

The court followed the approach to contractual interpretation as set out in the Supreme Court decision in The Law Society of Ireland v The Motor Insurers Bureau of Ireland[2]. The court held that it must ascertain “the meaning which [the lease] would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. In addition, “the reasonable person must have, or acquire, a sympathetic understanding of the commercial or practical context in which the agreement was meant to operate.”

The court found from the evidence it was clear that Mr Price was aware that Dunnes intended that it would be protected from competition from a supermarket, hypermarket, grocery, discount food store, frozen food outlet, mini-food market, convenience store or any similar premises, and that no other unit in the Retail Park in question would sell or display or sell or display any food, food products or groceries.

Mr Price argued that, as there was no definition of “groceries”, and as it may be difficult in a given case to determine whether an item is a “grocery item” or not, the court should refrain from making any order enforcing the restrictive covenant. It was argued that clarity was “necessary as to the terms of any order made against it; it must know with precision exactly what is likely to be in breach of the order. If such clarity is not possible, it is argued that an order should not be made.[3]”

The court ultimately did not agree with this submission. It found that the defendants were in breach of the restrictive covenants. It confirmed that if Mr Price removed all food products and groceries it would be in the court's view in compliance with the restrictive covenant. This would remove the threat of competition in the Retail Park, which the restrictive covenant in the lease was intended to address. The court granted relief which had the effect of enforcing the restrictive covenant, while “ensuring that the terms of any order are clear and allow the defendants to understand what they may or may not do”.

However, the court grappled with the difficulty presented in providing a clear definition of the term “groceries”. In short, the court found:

• The word “groceries” in the context of the particular covenant in question was meant to cover items beyond “food” and “food products”
• “Groceries” includes “non-durable consumable household items which are purchased frequently”

Conclusion

This case will be of particular interest to commercial parties entering into leases of retail premises where there are often restrictive covenants in place which may arise as a result of an anchor tenant having negotiated exclusivity. Restrictive covenants and exclusivities should be considered carefully by landlord and tenants alike. Moreover, it is of wider and more general relevance to all commercial parties, given it is a clear example of the difficulties that can arise if important terms to a contract are not defined with sufficient precision.

For more information, contact our Real Estate or Dispute Resolution teams.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

[1] Dunnes Stores Unlimited Company and Camgill Property A Sé Limited v Dafora Unlimited Company (First Named Defendant) and Corajio Unlimited Company T/A Mr. Price Branded Bargains (Second Named Defendant) 2020/7625 P. High Court [Approved] 3 June 2022 unreported [2022] IEHC 342 and High Court 15 July [2022] IEHC 476

[2] [2017] IESC 31

[3] See [2022] IEHC 342 at para 183