Negotiating the details of a commercial lease is critical for the protection of both the tenant and the landlord. There are numerous different classes that either party may want to include in the lease.
Commercial tenants hoping to open a new coffee shop or an oil change facility may worry primarily about costs and the duration of the lease. However, they may also want to consider the possibility of their landlord renting an adjacent or nearby property to a similar business.
Requesting the inclusion of an exclusive use clause can help protect a tenant from nearby competition that could affect profit margins and market share.
What is an exclusive use clause?
An exclusive use clause is essentially language prohibiting the landlord from renting another retail unit or office space in the same property or within a certain geographic radius of a tenant operating a similar company. If a landlord owns a small strip mall, they should not lease another space to a second coffee shop after signing a lease with a coffee business that has an exclusive use clause included in its lease.
Particularly when a business concept is trendy and relatively new, the possibility of nearby competition can negatively impact sales. Companies without established brands and those trying to enter a new market niche may want to negotiate an exclusive use clause in addition to other protective terms in a commercial lease.
The business model for the company, the nature of the rental property and other details influence the most appropriate clauses to include in a commercial lease. Working with an attorney when reviewing a commercial lease and communicating with the prospective landlord can help tenants better protect themselves. Custom contract inclusions can take some of the risk out of a long-term commitment to a specific commercial property.