What is an Exclusive Use Clause?
An exclusive use clause is defined as a provision within a commercial lease agreement that prohibits a landlord from leasing to another tenant for the same business purpose as the existing tenant. Exclusive use clauses are most common in shopping centres, but can be included in any commercial lease agreement. These clauses are important to the success of many small businesses and should be carefully considered and drawn up so as to avoid a breach of contract. An effective exclusive use clause protects the tenant and future income by limiting or avoiding direct competitors in a specific vicinity be it the same site or inclusive of adjoining properties owned by the same landlord. In turn, the landlord benefits through strong sales and a more diverse mixture of tenants and services to attract potential customers to the property.
Terms for breaking the exclusive use clauses often include remedies such as lease termination or a cure to the breach, or if the tenant remains profitable and wishes to stay it could result in reduced rent.
Exclusive Use Clauses: The Benefits and Risks
Exclusive use clauses are often a point of contention because landlords aim to be as specific as possible, causing a number of loopholes in the contract that allow them more freedom to choose tenants. At the same time, businesses interested in the lease should ensure the terms are broad enough to allow for growth. These agreements are often subject to exceptions for incidental sales, for example if the offending business does not offer product or service as their main source of income but more as a complimentary service.
Exclusive use clauses only apply to future tenants. Previous occupants of the building are exempt from the agreement. It also does not apply to large anchor tenants who could possibly change the scope of their services to overlap.
With exclusive use clauses, the details are extremely important. As a tenant, you do not want the clause to be too specific to the detriment of your own business, but you also want to avoid too many exceptions defeating the purpose of the clause leaving a wide range of possibilities to the interpretation which would be harder to defend and prove in the case of a breach.
Bedrock Realty has been negotiating commercial leases for 14 years. Our team is very familiar with exclusive use clauses – we know what to look for in the wording and easily understand the legal jargon so you get the best deal. Contact Us to find out how Bedrock can help guide you with your commercial leasing, subleasing and lease renewal needs.