Exclusive use provisions are extremely important in commercial leases, yet they are often overlooked and confused. Here’s why:
Exclusive Use Provisions Permit Use and Restrict Others.
As a business and franchise attorney I regularly work with commercial leases, which resemble franchise agreements. Both agreements contain a set of potentially negotiable contractual terms made binding upon execution. In the context of commercial real estate leases, the devil is most certainly in the details, as they say.
In a commercial lease agreement, exclusive use provisions are contractual terms that permit you to engage in a specific use, while restricting the other tenants from the same use. This means you are the only tenant permitted to engage in the specified use. This provides many potential benefits.
Generally, commercial tenants favor broadly stated exclusive use provisions, thus preventing direct competition from other tenants engaging in those broadly stated exclusions, within the greater commercial space. However, no one factor is dispositive, and each lease is unique, along with the individual client/tenant. Thus, there are other factors to be considered, such as complimentary tenants, who could help symbiotically drive your business.
Related, but Different (Generalized vs Specific).
Implicit in an exclusive use provision (EUP) are permitted uses, as it allows you to engage in the use other tenants are restrained from engaging in. Confusion may arise due to other clauses related to EUPs, such as a distinct clause articulating permitted uses. Commonly, EUPs and permitted uses are articulated as entirely separate sections or clauses.
To be distinguished from EUPs, permitted use sections may be generally applicable to many or all commercial tenants. It provides the generalized activities tenants may engage in. For landlords, this ensures alignment with the overall commercial space, along with the other tenants.
The rights bestowed via an EUP are specific to one party, the party benefitted with the permission to engage in the specified use. All other tenants are restricted from the same and thus may not act as the one permitted party. A narrowly defined permitted use section may benefit the landlord in complying with various EUPs.
Imagine discovering your commercial lease omits an EUP after the introduction of a new direct competitor, resulting in diluted and diminished customer demand, and, correspondingly, a decline in sales.
A matter of contract.
A commercial lease is an agreement memorialized in contract. An exclusive use provision is a term, and contract terms are capable of being freely negotiated. Thus, your exclusive use provision should be negotiated into your commercial lease agreement.
You can preclude direct competition from your overall commercial space by negotiating it into your commercial lease agreement!
When not applicable.
Note that an EUP will likely not be applicable to a subsequent party or tenant against prior existing tenants. Other factors include overall market forces, such as occupancy rates and rental demand, which may affect negotiation leverage (e.g., a retail space with minimal availability and high prospective tenant demand may favor the landlord in negotiations).
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