Tenant mix in shopping malls in Brazil: understanding of the Brazilian Superior Court of Justice regarding the responsibilities and limitations of the property manager

Maria Flavia Candido Seabra
Machado Meyer Advogados, São Paulo
mseabra@machadomeyer.com.br

Caio Fernandes
Machado Meyer Advogados, São Paulo
calves@machadomeyer.com.br

There is no contractual default and predatory action on the part of the shopping mall manager parties when authorising the installation of a new commercial establishment near a store that already explores the same business. This was the understanding of the Third Panel of the Brazilian Superior Court of Justice (STJ) when judging an appeal filed by a shopping mall in Rio de Janeiro against a decision that upheld the claim for compensation of a former tenant – a Japanese cuisine restaurant.

The request was based on the allegation that, by authorising the lease of the new establishment, the mall caused a drop in the store’s revenue, which, consequently, led to its closing.

The STJ’s main argument to establish this understanding was that the property manager is solely responsible for unilateral changes in the ‘tenant mix’ of the shopping mall. The tenant mix is characterised by the organisation of the space, with the choice of tenants that may lease the stores, as well as the installation of leisure areas and the promotion of advertising by the shopping mall manager.

This activity is essential in shopping malls and similar developments and aims to attract more visitors and thus increase the revenue of the enterprise.

In this sense, as the Brazilian author Paulo Restiffe Neto states:^[1] ‘The [shopping mall] landlord’s activity is the same of an entrepreneur of an organizational unit, which is justified in designing and managing the tenant mix, that is, to plan and organize the structure, operation and diversity of the stores’ activities and rendering of services, and not in to carry the direct sale of goods or services to the public, in competition with the tenants of the stores’.

Although, in an empirical analysis, permitting the lease of stores or restaurants with similar activities does not seem to be the best strategy, what is verified, especially in bigger developments, is the opposite.

With this diversity, the number of consumers is expected to increase, attracted by the different options and, consequently, boost profits. In the aforementioned lawsuit, the defendant proved that this is what happened to the restaurant that closed. That is, there was an increase in sales after the opening of another Japanese food restaurant nearby.

As stated in the judicial ruling, it is relevant that the shopping mall’s prerogative to adjust the tenant mix is included in the lease agreement or in the internal regulations of the business, and is thus enforceable against all tenants.

The current understanding is that shopping malls have a business purpose, and the respective tenants are also qualified as entrepreneurs. The contractual relationship between both, therefore, is characterised by business risk.

The Brazilian lease law (which is protectionist in relation to ordinary tenants) reinforces the principle of contractual freedom and the logic of free competition in every contract that regulates the lease of shopping malls by establishing that ‘in the relations between shopkeepers and shopping mall entrepreneurs, the conditions freely agreed upon in the respective lease contracts shall prevail’.

Despite this prerogative of free negotiation, it is up to the shopping malls’ managers not to put the tenants at an excessive disadvantage. The right of such managers to organise the tenant mix must be aligned with the contractual provisions of each lease (eg, any exclusivity guaranteed to the tenant by a certain period, the obligation to the entrepreneur to conduct works that attract new consumers and foster revenues or the installation of a cinema).

The topic pacifies similar discussions and brings legal certainty to both parties. Preventing shopping mall managers from making tenant mix adjustments would imply interference in their business and would restrict important and dynamic arrangements, which are necessary to the development of shopping malls and their ability to adapt the establishment to the demands of its visitors.

On the other hand, for shopkeepers, the case reinforces the need to assess a future investment in a particular shopping mall, considering the dynamism of the establishment. For this purpose, the clauses and guarantees essential to the opening of a store and applicable rules should be agreed to in advance with the manager of the shopping mall.