Also known as: unconscionable diversions of business · unfair competition · business diversion
Written by attorneys · grounded in primary & secondary sources — see below
Conduct by a tenant under a percentage lease that unfairly shifts business away from the leased premises to other locations. Courts penalize the conduct as a breach of the implied covenant of fair dealing.
Una Ueda operates a retail store under a percentage lease with Upland Industries. She opens a second location nearby and routes all new customers there. Ueda sues in federal court for copyright infringement over marketing materials and adds a state claim alleging the routing constitutes unconscionable diversion of business. The federal court exercises pendent jurisdiction over the state claim because both arise from the same facts.
Ultra Precision operates a store under a percentage lease with Nexxus. After its parent company acquires a competitor, Ultra Precision shifts customers to the competitor's location. Nexxus terminates the agreement. In the resulting contract dispute, the court finds the shift amounts to unconscionable diversion of business that violates the implied covenant of fair dealing.
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A tenant under a percentage lease who deliberately routes sales or customers to another location to reduce the landlord's percentage rent commits the conduct. Courts treat the routing as a breach of the implied covenant of fair dealing.
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No. The case applying the doctrine states that the landlord need not prove a measurable drop in percentage rent. The breach is complete once the tenant engages in the diversion.
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An express clause allowing the tenant to operate elsewhere does not automatically defeat the claim. The court still examines whether the tenant's actions were taken in bad faith to undermine the percentage-rent bargain.
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…alleging that Discover Bank had improperly charged him late-payment fees in violation of the Consumer Legal Remedies Act and the Unfair Competition Law. Discover Bank moved to compel arbitration pursuant to the arbitration clause in its cardholder agreement. That clause contained a class action waiver. The trial court denied the…