Quick Leasing Advice, Sophisticated Deal Terms: EXCLUSIVE USE PROVISION

My name is Maheen Akhter. I love what I do, and I would love to bill you for it, but prior to doing ANY of that, I just want to equip you with knowledge, so you can ask for the right things, know what is going on, understand the traps, and JUST DELETE THE NONSENSE. 

Have you ever wondered why when there is a new Starbucks in  a plaza, no other coffee shops seem to be near? or how if a Starbucks does come near an old coffee shop in a plaza, no new coffee shops ever enter that plaza after a Starbucks appears? Well it’s because there is an exclusive use provision has been added to the lease. Such provisions generally reads like this:

Exclusive Use. To induce Tenant to execute this Lease, and subject to all of the terms and provisions of this Section, Landlord covenants and agrees that neither Landlord nor any affiliate of Landlord shall lease or rent any premises in the buildings known as West Ferry Plaza, generally located at [provide address] to any new tenant (including, without limitation, any assignee, sublessee, licensee or other occupant of such new tenant) that operates a Competing Business (as hereinafter defined) without Tenant’s prior written consent, which consent may be withheld in Tenant’s  sole and absolute discretion. “

In an ideal world you can define “COMPETING BUSINESS” to mean any business that is primarily in the business of selling coffee, so you are not excluding grocery stores, or other stores that are not directly competing with you & actually funnel customers your way.  In order to effectively make sure you are excluding the right type of businesses, you  may consider saying something like, “obtains 50% of its revenue from coffee sales.”  You also may use these sorts of modifications to strike a deal with your potential landlord as well.

 What if you have an exclusive use clause in your lease, but it’s vague? The general rule in some states  requires that language of exclusiveuse clauses should be narrowly construed, and all doubts should be resolved against a possible construction that would increase the restriction upon the use of real estate.

  What if the Landlord breaches the “Exclusive Use” provision? 

  1. Option to terminate the lease, and receive damages  (maybe you and the Landlord prenegotiate what  these damages look like?)
  2. Option to terminate and receive a refund all monies spent on Tenant Improvements, along with the cost to relocate, and any fees paid by the tenant to a broker to find a new space.

I will tell you this-if your ONLY REMEDY is to terminate the lease, courts usually feel like that is not a true remedy. Terminating the lease and giving up your business location and the investments made in improvements would not provide any benefit or remedy to you. You could  argue that the remedies clause is unenforceable because it fails its essential purpose. A similar argument was made in Simon Prop. Grp., L.P. v. Kill, 2010-Ohio-1492, 47, and the court sided with the Tenant.

I  am trying really hard not to ramble, so that you’re some what interested in using this clause in the next lease you enter into. I know, I use “coffee shop” as my example, but this is an excellent provision to have in ALL leases, including medical spaces, book stores (ha- is that even a thing?), sandwich shops, spas, grocery stores, dry cleaning, nail salon, veterinarian clinics, etc.

Good luck.

 

 

 

 

 

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