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Originally published May 21, 2012 at 9:30 PM | Page modified May 22, 2012 at 9:58 AM

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QFC blocks new liquor stores from some shopping centers

QFC is enforcing contracts at some of its locations that prohibit private liquor stores from operating in the same shopping centers, according to real-estate brokers involved in two local deals, one in Issaquah and the other in Kirkland.

Seattle Times business reporter

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After the state's voters gave big retailers the right to sell liquor starting June 1, at least one chain is invoking a right that elbows out some slim small-store competition.

QFC is enforcing contracts at some of its locations that prohibit private liquor stores from operating in the same shopping centers, according to real-estate brokers involved in two local deals, one in Issaquah and the other in Kirkland.

The restrictions, which are legal, are causing some people to scramble for new locations after they won rights in an auction to operate one of the state's 167 existing liquor stores.

"Big-box stores funded the initiative for privatization and a free market, but they want to monopolize the situation," said Jeffrey Roh, a Kirkland orthopedic surgeon who won the right to sell spirits at three of the state's current locations. "They don't even want to let small businesses compete against them in this free market."

QFC spokesman Ken Banks declined to comment.

Roh does not have leases on any of the three locations he won and is losing hope. His broker tells him QFC is preventing one of the leases, and he suspects the grocery chain is holding up a second.

It's not clear whether other grocers have similar contracts that could exclude competition.

"It will vary lease by lease," said Scott Osborne, a real-estate transaction attorney at Summit Law Group in Seattle, "but it wouldn't surprise me if most grocery stores had exclusives that prevent new liquor stores from locating there."

The liquor-privatization law, which voters passed in November as Initiative 1183, allows only stores measuring 10,000 square feet or more (about the size of a Trader Joe's) to sell liquor — with the exception of some 300 existing state stores.

About half of those are owned by entrepreneurs who sold liquor under contract with the state.

The state has spent the past few months auctioning off rights to own and operate the others. Those rights came with no leases and no promise of a liquor license.

The law also allows anyone who cannot negotiate a lease successfully or otherwise do business at those locations to find another store within one mile.

But Roh says there are no other commercial spaces within a mile of one of his locations, at Issaquah's Klahanie Shopping Center. His real-estate broker, Scott Barber of CBRE, agrees.

"I've driven a mile radius on all the roads leading away from that shopping center, and there's nothing commercial," Barber said.

He said the shopping center's agents, Terri Gordon and Phil Davidson of Claremont Development, told him "they can't do anything because of a restriction in the lease" from QFC. Gordon declined to comment.

Pat McLaughlin, director of business enterprise at the Liquor Control Board, said that location was added late to the auction at the landlord's request. The state had not yet opened a liquor store there.

He also said he knows of no situation in which a current liquor store has no other commercial locations within a one-mile radius.

The noncompete restrictions come as a surprise to some real-estate specialists, including Rebecca Davidson and Chris Scalzo at John C. Radovich Development, which owns a liquor store in the parking lot of a QFC in the Totem Lake area of Kirkland.

Shortly before the state's online auction ended, another broker warned them and others to check their contracts with grocers for restrictions against private liquor shops.

When they realized their contract with QFC had a restriction, they asked the chain if it planned to enforce it, and QFC said yes.

Dennis Duryea, who led a group of four people who paid $56,100 for the right to operate that store, said he was surprised by the restriction but quickly found a new space at Upper Totem Lake Mall.

"We signed a lease, and we're good to go," Duryea said.

The deal with QFC was upsetting, he said, "but there were no guarantees when we bought it."

Melissa Allison: 206-464-3312

or mallison@seattletimes.com

On Twitter @AllisonSeattle

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