Pay attention to how your use clause is written in your lease. If you don’t, it could come back to haunt you and cost you in many ways.
Although all tenants need to pay attention to this and make sure the use clause is written correctly, retail tenants need to do this the most. Imagine you are a retail tenant and you sell a food item, for instance, coffee, as part of your menu. How do you make sure you always have the right to sell coffee under the terms of your lease? It’s not as simple as it sounds. And what if you don’t want other tenants to have the right to sell coffee? This is where the exclusive use clause comes in.
It is my opinion that a tenant should have a broad use clause. Example: “Tenant shall have the right to sell food products”. That way, the tenant has the right to pretty much sell any type of food product. But for a landlord, it would be better to limit the use clause to something like “ Tenant shall only have the right to sell coffee and coffee-related drinks”. In practice, savvy landlords and tenants end up writing the use clause somewhere in between the aforementioned two options.
The exclusive use clause is different than the usual use clause and adds to it in that it should prohibit or severely limit another tenant from selling your main product. But again, how the exclusive clause is written is of paramount importance. Example: “Tenant shall have the exclusive right to sell coffee at the Project” and it might add “except for up to 10% of another’s tenant’s gross income” or something like that with more details for clarification.
The above examples are for retail tenants but the same principle holds true for office, industrial or other types of leases also. If these clauses aren’t written just right you can have a legal battle on your hands and if the clauses weren’t crafted correctly you probably won’t win the battle so I urge great caution.
I have written and studied thousands of use clauses and make it a priority for my clients to do it right.
If you have questions about any of the above topics or have any CRE needs, please contact David Massie at david@djmcre.com or 805-217-0791