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Raising Cane’s is known for its chicken fingers.
And so one can image that the fast-food chain was none too pleased to learn that there was an unusual covenant attached to a property in Hobart, Indiana, on which it had signed a long-term lease, where it planned to open a location complete with a double drive-through and patio seating: It couldn’t sell any boneless chicken products. Which would make it difficult for a chain that offers virtually nothing else. (Technically it sells drinks, fries, sauce, coleslaw and Texas toast, but chicken fingers are unquestionably the main event.)
Raising Cane’s filed a lawsuit against the shopping center, the Crossings of Hobart, and its owner, Ohio-based Schottenstein Property Group, alleging fraud and saying that its would-be landlord failed to disclose the existence of the chicken ban, which surely would have been a dealbreaker. The provision barring it from selling chicken had been imposed, the fast-food chain said in court documents cited in a report by the Times of Northwest Indiana, by an noncompete agreement that the previous property owners had reached with a nearby McDonald’s in 1984.
“This case is about the defendants’ scheme to induce Raising Cane’s to enter a 15-year lease with rent payments to Crossings totaling millions of dollars, in exchange for a Raising Cane’s restaurant that the defendants knew would never actually exist,” Raising Cane’s claimed in the lawsuit, per the Times.
But a lawyer for the defendants suggested that Raising Cane’s should have read the lease more carefully – and done a title search. “The terms of the lease addressed the existence of potential restrictions,” attorney Mario Little said in a statement to The Washington Post. “Raising Cane’s apparently failed to identify such restriction (which is accessible in the publicly-recorded title records associated with the subject shopping center) via a title search the Lease expressly authorized Raising Cane’s to undertake.”
In the lawsuit, Raising Cane’s alleges that the issue came to light only when Crossings of Hobart asked McDonald’s for a waiver to allow a Chipotle to open there. McDonald’s refused and noted that a Raising Cane’s also would violate the terms of its lease, which gave the Golden Arches the exclusive right in the shopping center to sell deboned chicken products.
“Despite knowing that the entire business model of Raising Cane’s Chicken Fingers is premised on the sale of chicken fingers, the defendants did not disclose this issue before the lease was executed. In fact, the defendants specifically represented to Raising Cane’s that there was no exclusivity right that would conflict with Raising Cane’s ability to operate its restaurant,” the lawsuit alleges, according to the report. “Incredibly, the defendants did not tell Raising Cane’s it would be unable to sell its chicken fingers at the shopping center until nearly eight months later, after watching Raising Cane’s spend nearly a year of time and over a million dollars to develop its new restaurant.”
The chicken chain is reportedly asking for the 15-year lease to be voided and to be repaid what it has spent developing the site.
“As a result of defendants’ wrongful conduct, Raising Cane’s suffered injury and is entitled to rescission of the lease and/or the recovery of monetary damages, including but not limited to recovery of over a million dollars it has spent in development costs, as well as its lost profits,” the company wrote.
But Little said in the statement to The Post and in a court filing that the fast-food company is responsible because it signed the lease.
“Raising Cane’s claims lack merit because they are contrary to the lease Raising Cane’s negotiated and signed,” he said in the statement. And he suggested that the chain could still open its location, presumably if it switched up its menu: “Raising Cane’s contracted for the construction and use of a free-standing quick-service restaurant—a use that remains available to Raising Cane’s.”
Raising Cane’s, a fast-growing chain with more than 640 restaurants, entered the Indiana market in late 2020 with a location in Mishawaka. It plans to open a store in Avon on Tuesday and another near Hamilton Town Center in Noblesville in December.
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Sounds like the Schottenstein’s are not good people.
I bet a judge would rule change the covanent or pay. What stupid thing to have in a leasing contract.
It’s extremely common for those types of covenants to be in restaurant/retail leases. Not common however for the LL not to disclose to potential new tenants.
I’ve heard of these things before. Usually a landlord just doesn’t want too many of the same business in the same strip. If you have 3 fast food places all with the same operating hours aiming for the same or similar customer base, you’re going to have your strip very busy at the same peak hours. Whereas if you have a Starbucks, McDonalds, and Chili’s , you have three different businesses with different peak service hours.
It also would be nice if McDonalds took the high road and let them compete (they seem like different products) and raise the tide for every business in that market…but smart of them to negotiate that deal.
Judgment for the Plaintiff. If the landlord knew to have a waiver signed for Chipotle they should have asked McDonalds to sign a waiver for Raising Cane. The waiver for Raising Cane should be presented to McDonalds–hopefully they would sign. Regardless, the landlord should have to pay the legal fees.
Eliminate the covenant – it’s clearly in bad faith
Nope – it’s a reasonable restriction. What’s not right is the LL playing hide the ball b not telling Raising Cane.
1. This is why tenants and people in general hate landlords.
2. I don’t see the problem here. What McDonald’s sells is clearly not a deboned chicken product. Have you seen pictures of the soft serve ice cream-like crap they make “Chicken” McNuggets out of? I think they make the McRib and hot apple pies out of the same stuff.
Businesses looking to buy a commercial property would of course do a title search before proceeding with the purchase. But why would a business leasing a property do that? The lease agreement should contain all terms (including restrictions on the property) that each party is bound by and agrees to. The omission of such amounts to fraud by the lessor.
Judge will (or should) rule that the whole thing is doing business in bad faith and will rule against the developer. Covering it up and letting Cain’s build a restaurant, that’s just not right.
The words all mean something and Raising Cane’s should have had its legal team review and redline and items that they would have considered to be unacceptable, assuming of course it is explicitly stated.
It is also negotiations in bad faith and likely a negotiated settlement of some kind will result.