Chicago's Business Covenants Challenged

After a large supermarket left a Chicago neighborhood more than a year ago, residents eager for a replacement are having a hard time getting one. A restrictive covenant in the market's agreement prohibits a new store at the old site. These types of covenants are standard in the grocery and drug store industries, but now some Chicago officials want them banned.

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MICHELE NORRIS, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

ROBERT SIEGEL, host:

And I'm Robert Siegel, with a story about demand and a lack of supply.

When a grocery store or a drugstore leaves a neighborhood, the businesses sometimes set up restrictive covenants in real estate deals. These covenants are efforts to limit competition in case the market improves and new opportunities arise. Well, angry residents in one Chicago neighborhood say the practice hurts them. And now a Chicago alderman is working to ban the covenants. NPR's Cheryl Corley reports.

CHERYL CORLEY reporting:

For more than two decades, residents of Chicago's West Lawn neighborhood shopped at Dominick's supermarket. The store was located in what's now an aging shopping plaza, and parent company Safeway closed it and a number of other underachieving Dominicks nearly a year and a half ago. The property at 71st and Polaski is surrounded by other retail--a couple of restaurants, a Kmart--but the old Dominick's, a nearly 55,000-square-foot behemoth, remains empty.

Ms. EDIE CAVANAUGH (West Lawn Watchers): Now we're at our nice vacant Dominick's.

CORLEY: In her car, Edie Cavanaugh gets ready to turn into the parking lot, and points at a big sign on the building, one of the last vestiges of Dominick's presence. It reads, `Visit our new complete pharmacy.' Cavanaugh is the head of the West Lawn Watchers community group. She says the smaller neighborhood food stores in the area don't offer the array or quality of larger supermarkets, so with the Dominick's gone, people often have to travel much farther for groceries.

Ms. CAVANAUGH: You know, it's a big inconvenience, especially when you're elderly and you don't drive, or, you know, you have one car in the family and your husband's at work and you have little children. You know, it's a hardship on a lot of people. Now we got good little restaurants and stuff, but we need a grocery store. Any community needs a good grocery store.

CORLEY: Cavanaugh says to get to the closest supermarket, a lot of residents have to take two or three buses or travel into the nearby suburbs. Wynona Redmond is the spokeswoman for Dominick's.

Ms. WYNONA REDMOND (Spokeswoman, Dominick's Supermarket): In this specific instance, when we were looking to sell the property, there was one food operator that expressed interest who did not make a fair-market-value offer.

CORLEY: So instead, Dominick's sold the property to another developer, adding a contract clause prohibiting the owner from leasing or selling the property to another grocery store.

Ms. REDMOND: Which basically allows us to invest in our nearby stores. In this instance, if the new owner decides that he wants to put a food operator in there, Dominick's would be willing to talk to him about lifting the restrictive covenant.

CORLEY: Redmond says the supermarket chain has lifted restrictions in the past, and consider such agreements on a case-by-case basis. The owner of the old Dominick's site plans to bring in a Dollar Store and a thrift shop, something Cavanaugh and other residents say they don't need. They've held protests. So have residents in Milwaukee and Edmonton, Canada, faced with similar situations when different stores in their areas closed. Chicago Alderman Manuel Flores made sure a restrictive clause was not part of the contract when a Dominick's moved into the area he represents. He's also introduced legislation, believed to be the first in the nation, which would ban groceries and pharmacies from using covenants after vacating the premises.

Alderman MANUEL FLORES (Chicago): It is unfair to allow that same company to restrict or prohibit a competitor from going onto that piece of land, especially when you have that company shuttering its doors and deciding to leave the community.

CORLEY: Flores says he's not suggesting that all non-competition clauses be eliminated, but he says the type of restriction that Dominick has in place harms communities. Florida attorney Stephen Snively, who represents shopping center developers, says a 1990 court case in New Jersey suggests such covenants may turn out to be unenforceable.

Mr. STEPHEN SNIVELY (Attorney): If I had to lay odds on it, I would suspect that the courts will hold that there is an overriding public policy interest which outweighs, you know, the business interests of the restriction.

CORLEY: Snively says that means if approved, it's likely Chicago's effort to ban covenants would work, and that's what residents of West Lawn are hoping for. Cheryl Corley, NPR News, Chicago.

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