You are a retail tenant and it’s time to renew the lease on your current location, but when you contact your landlord, there’s a major problem. Another business in the same industry has also signed a lease in the retail center. Now, you are forced to compete with your next-door neighbor or find a new location.
Including an “exclusive use clause” in your lease agreement can go a long way in preventing this problem from happening. Exclusive use clauses are more prevalent in the retail sector, but do occasionally show up in office or industrial leases. They protect tenants in the event that a competitive retailer or retailer with a similar “use” attempts to move into the same complex. It also protects landlords by limiting an existing tenant’s ability to change its uses during the lease term and by providing them room to lease the remaining areas of the center.
“You want to have something that allows the landlord to grant an exclusive use to a tenant,” says J.R. Yocco, retail brokerage and leasing manager with Grant Street Associates, Inc. “But at the same time, you want to make sure it doesn’t restrict the landlord from entering into a lease down the road with a physically larger business.”
Exclusive use clauses also can impact the tenant mix synergy, so you want to be sure that it is fair to both parties.
“You don’t want the majority of your leaseable area to be taken up by one kind of business, because that’s overuse,” says Jared S. Imperatore, retail brokerage and leasing manager with Grant Street Associates, Inc.”
Smart Business spoke with Yocco and Imperatore about the key points for understanding exclusive use clauses.
What are the benefits of including exclusive use clauses?
From a tenant’s perspective, one benefit is that it eliminates the chance that your competition will move in next door. For example, many tanning salons have exclusive clauses in their leases so that no other tanning facilities can move into the same center. But certain gyms include tanning beds as part of their services. There could be a problem if that gym moves into a facility that includes a tanning salon. Even if it’s 10 to 15 percent of that gym’s business, it’s still being offered there. The gym might have to change its business plan because of the exclusivity clause.
Another plus is that an exclusive use clause limits a certain ratio of businesses within a center that could negatively impact your business. An example of this would be a neighborhood center with a doctor’s office. The medical facility would not necessarily want to be next door to a nail salon, where fumes or chemicals might negatively affect its patients. Exclusive use clauses can help to prevent this from happening.
On a similar level, landlords can ensure a greater return on investment by structuring leases with exclusive use clauses to provide a more attractive offering to the consumer. In smaller centers, an overage of restaurants can present parking problems. An exclusivity clause would help to control the tenant mix and ensure ease of traffic and parking.