Maryland Law on "Implied Exclusives" is Unclear


The Maryland federal and state courts have considered, on several occasions, whether there is an "implied covenant of exclusivity" in commercial leases. The issue in these cases is whether a landlord is precluded from leasing space to a new tenant whose business would compete with that of an existing tenant, where the existing tenant's lease is silent on this point. In the most recent pronouncement on this subject, the United States District Court for Maryland ruled that under Maryland law, there is no implied covenant of exclusivity in commercial leases. Eastern Shore Markets, Inc. v. J.D. Associates Limited Partnership (D.Md., 1999). The court determined that it would be "commercially unsound and entirely inappropriate" to imply such a covenant in light of common commercial practice and the ability of the parties to include an exclusivity clause in the lease, if they so desire.

Less than three years prior to this decision, however, another judge in the same court ruled in an unpublished opinion that the implied duties of good faith and fair dealing give rise to an implied covenant of exclusivity in commercial leases, where a portion of the rent is calculated on the basis of sales. Eastern Shore Markets v. DKR Investments (D.Md., 1996). The court recognized a duty on the part of the landlord to refrain from taking any action which would interfere with the tenant's ability to operate a successful business. This decision was based, in part, upon a 1958 state court case, Automatic Laundry Service v. Demas (Md. Court of Appeals, 1958) in which the court ruled that a grantor of a concession has an implied duty to refrain from "destructive competition" with the operator of the concession, where payments are based upon a percentage of sales.

Because the law on this issue is unsettled, landlords in Maryland should consider including in their leases with retail tenants a clear statement that the lease does not grant an express or implied exclusive to the tenant. This is especially important where the lease provides for payment of percentage rent.