Most retail shops operating in a mall or other commercial area would like a guarantee that the landlord will not rent to a competing business. This guarantee is often negotiated in the lease as an “exclusive use” provision. Here are some things to consider when negotiating exclusive use provisions:
What’s the use? Commercial tenants should specifically define their “use” in the Lease. What kinds of other businesses might be allowed in the absence of the provision? For instance, if a tenant has an ice cream cone shop and also sells a few ice cream cakes, can the landlord still rent to a bakery? If a coffee retailer has “exclusive use,” does that mean a sandwich shop can’t also sell coffee? Commercial tenants should be specific in the negotiations with the landlord in order to deter competing businesses from renting in the same building.
What about pre-existing tenants? A landlord can promise not to rent to a competing business in the future, but what happens if an existing tenant wants to change its business model and start offering competing products? Retail tenant are reminded to inquire about existing leases and the specific nature of the businesses of the other tenants. Again, use the lease to negotiate the issue of exclusions and limitations in use of the business area by the competing businesses.
What if things change? What happens if a tenant re-focuses its business and the use changes? Can it still keep the competitors away…and can it do so with regard to the new focus of the business? What if the tenant sublets some space or assigns the lease – does the exclusive use still apply? If the tenant temporarily falls behind on the rent, does it lose the right to exclusive use? All of these issues can and should be addressed in the lease.
What’s the remedy? If a tenant moves in, and changes the focus of its business to compete with an existing tenant having a similar business, and an exclusive use provision, what is the landlord’s remedy? The Lease will often describe the notice provisions and “events of default.” A Notice of Default and eventually a Notice to Quit may be proper remedies. Conversely, can a tenant take legal action if a landlord violates the contract and leases space to a competitor? Again, remedies are typically proscribed by the Lease, and if the evidence is availing for the tenant, an action for injunction will likely be an appropriate measure. Be wary of withholding rent, and be sure to consult with an attorney before taking any action that could be construed as a default.
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