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Do This. Don’t Do That – Exclusive, Permitted and Prohibited Uses

Exclusive use clauses are relatively common during commercial lease negotiations.  An exclusive use clause prohibits a landlord from leasing to another tenant for the same business purpose as the existing tenant.  For example, a tenant that operates mainly as a seafood restaurant might seek to prohibit the landlord from leasing space to another restaurant tenant offering similar seafood menu items.  In order to avoid anti-competition concerns, the general rule is that exclusive use provisions must be reasonable in scope (i.e., geographical area, duration and restricted use).

Permitted use clauses are also common.  This type of clause outlines what the tenant is permitted to do in the premises space.  By implication, these clauses make activities not listed as activities that are not permitted.  If drafted thoughtfully it will accurately outline all activities the tenant envisions using the premises for.  However, tenants should also be mindful that a narrow permitted use clause can often serve as a restriction on the ability to assign or sublet the space since the assignee of the lease would also be restricted to that permitted use.

Lastly, a restrictive use clause states what a tenant is prohibited from doing.  Most commonly these are designed as a long list of what the landlord believes is a nuisance to the other tenants or uses that would reduce the overall value of the property.  Examples are restrictions against resale shops, adult video stores, bowling alleys, dry cleaning plants and/or firework sales.  In addition, logically, if one tenant has an exclusive use (such as the seafood restaurant example above) then other tenants on the property will be restricted from engaging in that use through the drafting of a restrictive use clause.

Ultimately it is the landlord’s objective to design a successful shopping center or building.  One of the most important aspects to accomplish this is for the landlord to get the right tenant mix and for those tenants to each be successful in their operations.  All these different use provisions work together and are an essential part of this goal.

Wendy Lambie

Phone: 281-367-1222

Fax: 281-210-1361

[email protected]

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