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CHICAGO-In a move being watched—if potentially copied—from Atlanta to British Columbia, Chicago aldermen are likely to prohibit restrictive use covenants on 7,500-sf leases or greater involving grocery and pharmacy tenants as early as next month. While a formal vote will not be taken until next month, the consensus of a joint meeting of the zoning as well as economic, capital and technology committees was unanimous Thursday.

If passed by the city council, which could come as early as next month, the law would grandfather restrictive use covenants in place before May 11, when 1st Ward Alderman Manuel Flores and 39th Ward Alderman Margaret Laurino introduced the measure aimed at reducing the number of shuttered grocery stores across the city. However, restrictive use covenants would be allowed for up to three years if the tenant relocated within a half-mile of the vacated store and completed the move within two years.

While leases often allow prospective anchor tenants to bar competitors from renting space at the same shopping center, aldermen are upset by restrictive use covenants that bar competitors from taking over space vacated by grocery or pharmacy operators. “Every community should have access to food, every community should have access to medication,” says Flores, who discovered a restrictive use covenant during negotiations to bring a Dominick’s store to his ward.

Conceding the practice of blocking competitors to take over their abandoned spaces may not seem fair, Chicagoland Chamber of Commerce president and chief executive officer Jerry Roper counters that is the right of the tenant and property owner. He adds the law would be one more obstacle to attracting business to the city, which already has the highest commercial property tax and sales tax rates in the US.

Most aldermen could point to at least one example where restrictive use covenants resulted in vacant stores causing blight and flight of sales tax dollars to other wards, or neighboring suburbs. “With ownership of real estate comes a burden,” says 50th Ward Alderman Bernard Stone, a longtime licensed broker. “You don’t let your property go to seed like these people have done…When you close down a shopping center, you shut down the sales-tax revenue this city needs.”

While most of the complaints focused on Safeway-owned Dominick’s and Albertson’s division Jewel-Osco, those specific grocers invest $500 million in stores, usually $5 million or more at each of its locations, and employ 13,500, with 10,000 of those workers union members, says Illinois Retail Merchants Association chief executive officer David Vite. “When a store comes here and makes that $5 million to $6 million investment in the community in capital dollars, they want some reasonable expectation they’ll get a return on that investment along the way,” says Vite, noting grocers operate on a miniscule 1% to 2% profit margin. Limits on restrictive covenants could affect retailers’ decisions to remodel stores, back the building of new outlets or enter additional neighborhoods, he suggests.

“Some of these retailers are headquartered in California, Idaho or Deerfield, IL,” Vite adds. “If you want these people in your communities, you have to give them a reason to invest in your community.”

The reason is already there, aldermen say, in profitable markets. “I understand it’s expensive to do business in the city, but it’s a very fertile market,” says 44th Ward Alderman Thomas Tunney, who owns retail properties that house his Ann Sather’s restaurants. In more affluent neighborhoods, Flores adds, Dominick’s and Jewel stores can be found virtually next to each other. “Every time I drive by those areas, those shopping centers are doing great,” he says.

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