Use Clauses & Exclusives – Know What They Mean

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.

Unconventional Uses of Commercial Property Space

Times are tough in a lot of cities these days when it comes to keeping commercial space rented. There are vacant buildings, and blank store spaces in malls and shopping plazas, looking like so many empty promises. In every case, the emptiness impacts not only commercial property management, but also the neighborhood or shopping space these vacancies reside in – and not in a positive way.

The good news is that a lot of creative minds are finding new ways to utilize empty commercial space no matter where it is, or how big. Here are some innovative ideas on giving empty spaces new and profitable identities.

If you don’t mind putting in a bit of effort and money into renovation, building conversions are a good way to repurpose old warehouses. Section that space into separate offices or retail spaces, and rent to a number of different smaller clients, instead of one big client. One owner converted a distribution warehouse into a courthouse and parking garage. An old warehouse with refrigeration and freezer facilities is now used by a transport company which specializes in temperature-controlled time sensitive food transportation. In another case, a manufacturing plant found new life as a church and a school.

Turns out empty big box retail stores are a perfect location for expansions from community colleges or universities. The locations have good access to roads, plenty of parking, and can easily be changed into flexible classroom space.

Vocational schools fit well into shopping malls. Massage schools as well as make-up and hair dressing schools complement the shopping atmosphere. As well as paying the rent, there’s an influx of people coming in who who’ll end up frequenting the stores and food court.

Vacant mall spaces are also ideal for those not yet of school age. That’s why you’ll find daycares and preschool spaces popping up in local malls and shopping centers. Parents can pick up their children and conveniently get their shopping done in one trip.

Another trend sees government offices moving into shopping malls, mainly in the mall wings which are usually difficult spaces to rent. It’s ideal due to the availability of parking, public transportation, and the shopping space itself being a natural community focal point.

Medical clinics are finding homes in shopping centers, malls, and shopping plazas. Everything from emergency clinics to dialysis centers. Being in a retail location gives them visibility, provides easy access and they have all the parking spaces they need. If you’re considering this, make sure property management checks out the exclusion clauses of the space.

When long-term solutions are not readily available, inject some short-term marketing creativity to help pay the bills, brighten the space, and make these commercial spaces more enticing.

Pop-ups are becoming increasingly popular and are no longer limited to holiday sales. There are pop-up restaurants, and pop-up shops with every kind of product or service you can imagine. A successful online business may want a temporary tangible retail space for a special promotion –and end up as a viable tenant.

In between those short-term and long term tenants – fill that ugly gap with the help of local artists who’d love somewhere to display their art. It brightens up the space, generates interest, and may get someone thinking that this is not a bad place to locate a business! Whether or not you charge, it’s a much nicer venue for commercial property management people to show to a potential renter!

Long-term, short-term, temporary - it’s better to have someone in that retail space than to leave it bleak and empty. So, shake up those creative marketing juices of yours and try out some new ideas!