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What Is A Tenant’s Exclusive Use Clause?

Author: Date: 05/03/2020

Categories: Commercial Leasing, Real Estate Law

Image of a new shopping center signifying commercial leasing.

One important consideration for landlords and tenants in commercial lease negotiations in Maryland is whether to demand a tenant’s exclusive use clause (if you are the tenant) or when to extend that right to your tenants (if you are a landlord).

An exclusive use clause grants the tenant the right to prevent the landlord from leasing another tenant space in a shopping center, building, or development, to one of the tenant’s competitors. Landlords and tenants will negotiate the exact scope of the tenant’s permitted use. For example, a restaurant may want to prevent other restaurants that offer the exact same menu items; while a hair salon may want to prevent other barbers, salons, and nail shops from competing in the same center.

Exclusive use clauses are common in retail settings, including shopping centers, malls, and mixed-use developments. Exclusives are also becoming more common in flex and office space, where walk-in customers are still likely.

Detailed negotiations often arise over the exact scope of the tenant’s protected uses, as well as over the breadth of the tenant’s enforcement rights in the event of a landlord breach. Some common scenarios for negotiating enforcement rights include: Requiring a landlord to use reasonable measures to force the competing business to cease activities; allowing the tenant to withhold its rent during the violation period; or allowing the tenant to terminate the lease after a given period of time. Various forms of lawsuits, liquidated damages, and other penalties can also be negotiated between the parties.

These provisions can be key for a popular store that attracts new competition, or for a unique business that cannot afford to lose its customers to a competitor. Landlords may be interested in offering these rights because it can keep their good tenants happy and also allow for a diversified, balanced tenant mix. If you are a commercial tenant negotiating your lease or a commercial landlord in need of counsel, the attorneys at McMillan Metro can assist you.

Peter Ciferri’s practice areas include Commercial Leasing, Land Use, Zoning and Municipal Law, and Real Estate Law. To schedule a consultation, please call Peter E. Ciferri at (240) 778-2307.