Experienced. Dedicated. Result-Driven.

  1. Home
  2.  • 
  3. Commercial Real Estate
  4.  • Be careful with exclusive use clauses for your tenants

Be careful with exclusive use clauses for your tenants

If you own a multi-unit commercial building, whether it’s a plaza full of spaces or a building full of offices, beware of the exclusive use clause. Most of your tenants, if they have any experience with commercial leases, will want them. However, agreeing to broad terms could turn your rental property into a nightmare.

Consider this scenario: You rent a space to a coffee shop because you know that it’s likely to attract a lot of foot traffic to your plaza — which is good for everyone. In your haste to get the owners to sign a lease, you agree to an exclusive use clause that prohibits you from renting to a direct competitor and obligates you to enforce limitations on your other tenants.

One day, you get a furious call from the coffee shop’s owner, who informs you that he’s treating the lease as broken because you’ve let another tenant infringe on his exclusive use provision. You’re mystified because you haven’t allowed any direct competitor — like Starbucks or Dunkin’ Donuts — to move in. You rented to a bakery that primarily makes wedding cakes, but they also have a small array of cookies and keep a pot of coffee running for customers who’d like a cup to go.

The problem is that you and the tenant each had different ideas about what the exclusive use clause in the coffee shop’s lease meant. If the wording is sufficiently vague in your contract, you could be in a lot of trouble.

You can avoid problems like these by drafting exclusive use provisions with specificity. Talking through a range of possible scenarios with an experienced attorney before you sign on a new tenant can often bring to light potential problems with a commercial lease — and help you find solutions that will keep you out of litigation.