Finalizing a corporate lease in a multi-use facility such as a shopping mall or office building or complex entails more than deciding on the rent amount and length of tenancy. One area of importance to both property management people and the tenant are the ‘use clauses’ and ‘exclusive clauses’ within the lease. These clauses define the use of the space. Landlords prefer well-defined clauses whereas most tenants prefer clauses open to wide interpretation. The key to an acceptable lease is finding a balance whereby both the landlord and tenant feel their own interests are appreciated and safeguarded.
‘Use clauses’ and ‘exclusive clauses’ set the limits for a tenant’s activities within their business rental space. The two clauses typically work together and come in many variations.
‘Use clauses’ tell a tenant what they can do, or what they can’t do. As well, these clauses can be broad in merely noting the type of business conducted, or they can be constricting in specifying the products or services allowed for sale. A permissive ‘use clause’ specifically lists what you can do, thus any services not listed are not allowed. For example, a postal outlet might want to expand its services to faxes and photocopying which seems like a logical progression. However, if those services are not listed, they’re off limits. A restrictive ‘use clause’ specifies what you cannot do. You may not be allowed to sell food in your business space. You can, however, sell books, or sportswear or anything that is not written down. In many cases you’ll find that a restrictive ‘use clause’ is connected to an exclusive ‘use clause’.
Not surprisingly, tenants prefer a broad use clause such as, ‘any lawful use’ or ‘any lawful retail use’. This openness allows them to update their business when necessary to keep up with an evolving marketplace.
‘Exclusive use’ or ‘Exclusive’ clauses may apply to a specific geographic area and prevent a landlord from leasing to a new tenant who has the same business as an existing tenant. It can also ensure a landlord leases only to specific types of tenants. If you include an ‘exclusive clause’, make sure you also take into account reparation in case of a breach. This may include things like reduced rent, a lease term reduction, and a set amount of money for damages.
Who wants ‘exclusive clauses’? A major or ‘anchor’ tenant at a shopping mall wants to maintain exclusivity for their products or service. A group of dentists with a large practice may ask the landlord of their office complex to agree to rent only to compatible tenants like a denturist, a pharmacy, or a rental service for home care equipment.
When you’re using ‘use clauses’ or ‘exclusive clauses’, make sure that terms are clearly defined. For example, what exactly is meant by ‘groceries’? Does this just apply to food, or does this include paper products, soap, and diapers? What makes up a ‘sales area’? Is this the shelving space where products are displayed, or does it include the store aisles, and the check-out area? Taking the time to specify now, can save time and money for property management in a court case later.
Having a ‘use clause’ in a lease is no guarantee the tenant will abide by it. Businesses change - they may need to evolve or expand to keep up with changing customer demands. So it’s a good idea for property managers to regularly audit their tenants to make sure they’re compliant. A landlord during the due diligence period should review existing leases and ensure their new tenants are abiding by the terms that have been set out.
When it comes down to incorporating ‘use clause’s and ‘exclusive clauses’, commercial property management companies must consider many different issues in every lease. And to be honest, it’s not getting any easier. Today many businesses have expanded their products and services beyond the usual accepted parameters. Some grocery stores now have a pharmacy and a bank outlet as well as a wine kiosk. Corner drugstores sell coffee, food, stamps, and the latest electronics. It all lands on the shoulders of landlords and their lawyers, who must face the pressure this disturbing trend adds to the challenges of negotiating and drafting an acceptable and enforceable lease.
‘Use clauses’ tell a tenant what they can do, or what they can’t do. As well, these clauses can be broad in merely noting the type of business conducted, or they can be constricting in specifying the products or services allowed for sale. A permissive ‘use clause’ specifically lists what you can do, thus any services not listed are not allowed. For example, a postal outlet might want to expand its services to faxes and photocopying which seems like a logical progression. However, if those services are not listed, they’re off limits. A restrictive ‘use clause’ specifies what you cannot do. You may not be allowed to sell food in your business space. You can, however, sell books, or sportswear or anything that is not written down. In many cases you’ll find that a restrictive ‘use clause’ is connected to an exclusive ‘use clause’.
Not surprisingly, tenants prefer a broad use clause such as, ‘any lawful use’ or ‘any lawful retail use’. This openness allows them to update their business when necessary to keep up with an evolving marketplace.
‘Exclusive use’ or ‘Exclusive’ clauses may apply to a specific geographic area and prevent a landlord from leasing to a new tenant who has the same business as an existing tenant. It can also ensure a landlord leases only to specific types of tenants. If you include an ‘exclusive clause’, make sure you also take into account reparation in case of a breach. This may include things like reduced rent, a lease term reduction, and a set amount of money for damages.
Who wants ‘exclusive clauses’? A major or ‘anchor’ tenant at a shopping mall wants to maintain exclusivity for their products or service. A group of dentists with a large practice may ask the landlord of their office complex to agree to rent only to compatible tenants like a denturist, a pharmacy, or a rental service for home care equipment.
When you’re using ‘use clauses’ or ‘exclusive clauses’, make sure that terms are clearly defined. For example, what exactly is meant by ‘groceries’? Does this just apply to food, or does this include paper products, soap, and diapers? What makes up a ‘sales area’? Is this the shelving space where products are displayed, or does it include the store aisles, and the check-out area? Taking the time to specify now, can save time and money for property management in a court case later.
Having a ‘use clause’ in a lease is no guarantee the tenant will abide by it. Businesses change - they may need to evolve or expand to keep up with changing customer demands. So it’s a good idea for property managers to regularly audit their tenants to make sure they’re compliant. A landlord during the due diligence period should review existing leases and ensure their new tenants are abiding by the terms that have been set out.
When it comes down to incorporating ‘use clause’s and ‘exclusive clauses’, commercial property management companies must consider many different issues in every lease. And to be honest, it’s not getting any easier. Today many businesses have expanded their products and services beyond the usual accepted parameters. Some grocery stores now have a pharmacy and a bank outlet as well as a wine kiosk. Corner drugstores sell coffee, food, stamps, and the latest electronics. It all lands on the shoulders of landlords and their lawyers, who must face the pressure this disturbing trend adds to the challenges of negotiating and drafting an acceptable and enforceable lease.
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