Mall Tenants Demand 'non-competitive' Clause

FF Fashion

Jun 21, 2009
The Straits Times
Irene Tham

Storm in a coffee cup? Not so, judging by the concern of at least four mall tenants who now want their landlords to stay out of their line of business.

They want this pledge in writing, under new proposed protection clauses in their tenancy agreements.

It was a 'mini storm' over the entrance of Far East Organisation into the same business as some of its tenants at its malls that led to this concern.

The four, all coffee joints and eateries, told The Sunday Times that the tenancy agreements should now have a 'data confidentiality' or 'non-competitive' clause.

They felt that landlords can gauge how lucrative their businesses are from the 'sensitive' monthly or daily sales data submitted for the purpose of calculating rent.

Newer malls have even automated this process, with a central point-of-sale (POS) computerised system.

It all began when Far East's subsidiary, Kitchen Language, opened sandwich shop Quiznos last December and coffee joint Tully's in January - both at Far East Square.

Kitchen Language also opened a Tully's outlet in another of its malls, West Coast Plaza, in November last year.

In a Sunday Times report on June 7, sandwich chain Subway, which has an outlet at Far East Square, claimed that it had suffered a monthly 'double-digit' dip in sales since Quiznos opened.

Subway also felt that there could be a conflict of interest, such as the landlord taking up prime space for its own businesses. It is currently in talks with Far East to include a data confidentiality clause in its tenancy agreement.

A typical clause will specify that any sales information submitted to the landlord be used purely for calculating rent and not shared with other tenants or the landlord's subsidiaries.

Another concerned tenant is O'Briens Irish Sandwich Bars, which has an outlet at Central in Clarke Quay, a Far East mall. The lease is up for renewal next year.

O'Briens said it will want a clause in its new contract stating that the landlord cannot set up a similar business within the mall.

'I would not have considered such a clause in the past but it is necessary now,' said Mr Hugh Hoyes-****, CEO of O'Briens Asia. He said the contract may not be renewed otherwise.

Starbucks, the largest coffee chain in Singapore, said it too will insist on a data confidentiality clause in all tenancy agreements when the leases for some of its 64 outlets, most of which are not in Far East malls, expire next year.

The chain's Far East mall Central@Clarke Quay and West Coast Plaza.

'It is a fair request when sales data is required by the landlord,' said Mr Jeff Miller, Starbucks Coffee Singapore managing director.

'Refusal of such a basic inclusion would make one question if the data is being used for some other purpose and make me look twice at the fundamental integrity of the agreement,' he added.

Mr Daniel Tay, CEO of Bakerzin, wants the same clause; the daily takings of most of its 11 outlets are linked to the landlord's central cash register. The cafe chain does not have any outlet in Far East malls.

Most mall managers operate a central POS to calculate rent, although some malls get monthly takings from tenants in an e-mail attachment and a handful charge a flat rate regardless of their tenants' turnover.

Unlike Far East, other mall operators like CapitaLand Retail, AsiaMalls, Lend Lease and Frasers Centrepoint have no links to retail business that competes with that of their tenants.

Far East said it had assured tenants that their sensitive sales information would not be shared with its subsidiaries. On what some tenants are now seeking, Far East said that a confidentiality clause 'can be expressly provided for, if required, for commercial reasons'.

As for trade exclusivity, 'we have had such requests and have considered them based on their merits in relation to the mall', it told The Sunday Times last Friday.

Singapore Retailers Association executive director Lau Chuen Wei felt that it is only fair that a confidentiality clause be worked into lease agreements.