If this is your first time negotiating a commercial lease for your business, you need to be careful. While there are numerous laws and regulations designed to protect the unwary residential renter, the law generally presumes that business owners are savvy enough to look after themselves. There's very little that can protect you from a bad lease, except knowledge.
One of the most important things that any business owner thinking of renting a space should understand is the purpose and value of an exclusive use clause.
What Is an Exclusive Use Clause?
Exclusive use clauses restrict your landlord's right to lease another space in the same shopping plaza, center or mall to another tenant whose business might detract from yours. They're very common in shopping centers, plazas, and malls becuase they're seen as a necessary protection by many commercial tenants.
For example, if you plan to open a coffee shop in a suburban plaza, you don't want your landlord to lease out a second space in the same plaza to another coffee shop. That sort of direct competition could easily have a detrimental effect on your business.
What Should You Keep in Mind during Negotiations?
First of all, remember that you need everything in writing. The mutual understanding that you seem to have with the landlord during negotiations can vanish down the line if there is ever a conflict.
Your clause should do the following things:
- Clearly and completely protect your interests by limiting the type and number of other potential tenants that can engage in operations similar to yours.
- Obligate the landlord to monitor other tenants for violations and enforce the exclusive use clause.
An effective clause has to be specific. For example, if the clause in the contract for your coffee shop only specifically bars the landlord from allowing another coffee shop to open up in the plaza, you wouldn't have any recourse against a doughnut shop that happens to sell coffee on the side—no matter how badly that might hurt your business.
You also need to make certain that your landlord can actually enforce the exclusive use clause. Ask if the existing tenants are subject to provisions that prevent them from violating the exclusive use contracts of other tenants. Are the tenants also required to get the landlord's approval before changing how they use the space they rent? If not, your exclusive use clause may not have any real value because the landlord won't be able to enforce it.
Exclusive use clauses are one of the trickier aspects of commercial leases to handle. If you're concerned about your ability to manage these negotiations on your own, an experienced real estate attorney might be able to help.