Friday, August 12, 2005

City fights back against abusive restrictive covenants

Chicago alderman Manny Flores (1st ward) and Alderman Marge Laurino (39th ward) moved an ordinance that will restrict the ability of the owners of closed grocery stores to leave a neighborhood with a shuttered building and block another grocery store from leasing the property.

(I can't imagine former First Ward Alderman Jesse Granato passing this ordinance, so congratulations to Flores and Laurino. I'm glad I worked on Flores' campaign as a former First Warder in the Ukrainian Village)

This is a real problem in Chicago, and probably around the state.

Why are these retail stores remaining closed in neighborhoods where lots of people need to buy food?

One reason is because the owner of the land agreed to a restrictive convenant that prohibits another grocery store from leasing or buying the property after the first store closes.

That's an abuse. And in the bundle of legal rights of property, that's a right that landowners shouldn't have.

This article in the Sun-Times by Fran "Don't Put Words In My Mouth" Spielman lays it out quite well.

One interesting part: Jerry Roper, a great civic business leader, had this to say about Chicago's business climate:

"Chicago has the highest commercial and industrial property taxes in the nation. We have amongst the highest workers compensation costs. We have the highest sales tax.

Seems to me that the first and the third complaints are a direct consequence of our very low 3% state income tax, our very low 5.4% state corporate income tax and our 0% local income tax. If we raised more revenue from a higher income tax, we could lower our commercial/industrial property taxes in Cook County and we could lower the sales tax as well.

And on the workers comp, the Democratic Party negotiated a reform package to lower workers comp costs, which ought to be trumpeted more than it is.


n. y. krause said...

Cool, more Dantastic craziness. Riddle me this, Dan: what if I buy some land from you outright. Then I build a grocery store. Then, after the grocery store goes out of business, I lease the land back to you, but the lease says that you can use the land for anything else other than opening another grocery store. Is that okay?

P.S.: I don't really understand why grocery store owners want to do this, though. Once my grocery store goes out of business, why do I care if another one comes in afterwards?

Anonymous said...

we have a "tax" that is much higher than any of these: relatively ineffective bosses (massively so) at some legacy companies and organizations.

Lazerlou said...
This comment has been removed by a blog administrator.
Lazerlou said...

Krause, it isn' t just in renting, it is a covenant that a subsequent owner of the land will not open or rent to someone who will open a grocery. And it's not that they go out of business. It is likely chains that relocate stores for strategic geographical reasons. They don't want someone filling their void. It is anti-competitive and is arguably a business practice that unreasonably restrains trade.

Such restrictions should br frowned upon from a policy perspective,a nd the governemnet through zoning should be the arbiter of land use, not individuals restricting other buyers from using their land as they please.

Anonymous said...

Dan, I worked at a high-level on Manny Flores' campaign. I don't recall you ever being involved. If you were involved, it was insignificant.

Anonymous said...

ah, self-designated arbiters of significance - my favorite!

n. y. krause said...

What I'm saying is, the grocery store people bought a chunk of the rights to the property in question, to wit, they bought a permanent easement restricting its future use. Would it be any different if they had bought the land outright and were refusing to let a competitor build a grocery store there? Or is it that the government can jus ttell any landowner that they must agree to build a grocery store on their site.

Also, the fact that there is a "competition" issue here implies that there is another grocery store in the area. So, it's not that the people in the neighborhood can't buy food, but that it the store isn't close enough for some people's liking. That's a big difference.

n. y. krause said...

"Dan, I worked at a high-level on Manny Flores' campaign. I don't recall you ever being involved. If you were involved, it was insignificant."

Damn, Dan, he called you a buster! Oooh!

Dan Johnson-Weinberger said...

Wow. What sort of a 'high-level' campaign guy would call your volunteers insignificant? I worked the 11th precinct, 1st ward. Not a 'high-level' staffer like you, Anonymous -- just a couple days helping out and working election day. That's the kind of thing that 'high-level' staffers would want to encourage, not heap with disdain, I would think. So, N.Y., the decision to enforce a restrictive covenant that prohibits another grocery store from opening up after the original grocery store closes affects lots of people, not just the owner of the original grocery store. It's a bad idea to allow anyone to buy that right to prohibit a grocery store, and in the bundle of legal rights of property, that's one stick that shouldn't be for sale.

Lazerlou said...

no not an easement, a coveneant, and no, they own nothing. They have not purcase an easement from the buyers. You see the problem, they are encumbering use of the land they once owned and have no interest in after the sale. These sorts of restrictive covenants running with the land were frowned upon at common law as policy since the missle ages is to allow free use of land. There were strict rules at common law about such covenanta being able to run with the land. Rightly so.

Anonymous said...

i've given non-competes some thought in different contexts.

one can make an argument for a non-compete period of finite duration - eg, for one or two years. However, indefinite non-compete periods are probably not great.

companies use money all the time to buy off competition and limit free speech

n. y. krause said...

Lazerlou: Yes, you're right, I was using "easement" rather sloppily. Technically, both easements and restrictive covenants are types of nonpossessory interest in land, which are property rights. We can describe them as property rights because they can be described equally well in terms of the grocery store company as landowner: you could as well say that they own the land, but they granted an easement to previous owners allowing them to use it for any purpose other than building another grocery store. 6 of one, half-dozen the other. If restrictive covenants were frowned up in the Middle Ages, it's probably because they complicated attempts by the king to control use of land throughout the country; the same reason that primogeniture was mandated, etc.

Dan: Everything you do affects lots of people, not just yourself. One needs more justification than just that for regulation. Dan, you sez, "It's a bad idea to allow anyone to buy that right to prohibit a grocery store". I can only assume that you mean, it's a bad idea to allow anyone to but such a right unless I am buying the land outright, since I obviously can prohibit building a grocery store if I've bought land for some other purpose. So, then, the question is, why? Why is it okay to buy all of the rights to a piece of land, but not some of them? All you accomplish by doing this is that you reduce the value of the land, by reducing the owner's ability to sell it to other parties flexibly.

anonymous: A non-compete agreement restricting an individual's behaviour should be of limited duration. After all, you can't get a property right in another person's life. However, since you can have a property right in a piece of land, I don't see the problem with a permanent covenant.

Lazerlou said...

Krause, I'm guessing by your armchair observations you didn't go to lawschool, or if you did, not a very good one. Conditioning sale of land on a negative covenant, requiring a subsequent purchaser to agree to do or not do something with their land as a part of the deed of sale is not the same thing as an easement at all, in which that subsequent buyer has the choice to grant or not grant someone an easment. It is far from six or a half or dozen as you imply, that is why they are called differnent names and have entirely different law associated with each.

And no, it feudal times it had nothing to do with the King wanting to control the land. The king couldn't control the land. That is why it was the dark ages, the local nobility controlled everything as best they could, and rules against restrictive covenants were in place precisely to ensure that peasants who poseesed the land put land to good use and produced food instead of restricting its use for any other reason.

You are wrong about back then as you are about now. Ironic that the same policy, food for people should be encouraged, is applicable 800 years later.