Article blog – Part 8

3. Permitted uses and restrictions on use: The lease will describe what the tenant may do within the leased premises as a “Permitted Use.” Use restrictions will also be included to prevent  objectionable uses, incompatible uses and (particularly in a retail context) exclusive rights. A lease may require the tenant to use the premises only for one specified purpose or may provide for any lawful use. A tenant must analyze how such restrictions might affect its business, as well as its needs for flexibility to allow assignments and subleases, and a landlord desires to maintain a compatible tenant mix and general character of the project (prohibiting unwanted uses).

Lastly, the tenant must comply with use restrictions affecting the premises under recorded documents (for example, a Declaration of Covenants, Conditions and Restrictions recorded against the property), under applicable zoning ordinances, or even other leases. Tenant’s counsel should always ask the landlord to provide all use restrictions applicable to the premises for review and approval during negotiations.

4. Exclusive uses: Exclusive use rights arise primarily in the retail context, which prevent others from selling competing products or services. The trend today is for retailers, particularly large national chains, to demand broad exclusive rights. The landlord tries to negotiate the narrowest rights possible to maintain its ability to lease to a wide variety of tenants. To guard against overly broad restrictions, it is advisable to limit exclusive rights to the single “primary business” of each tenant and to carve out exceptions for “incidental uses,” which may be left undefined or defined by percentage of sales or maximum floor areas. Another safeguard is to require exclusive rights to lapse if not actively used. The negotiations will focus on what constitutes a default by the landlord and subsequent remedies available to the tenant, as tenants want to assure the landlord will honor these rights, and the landlord does not want to be responsible for a “rogue tenant” who violates the terms of its lease.