WHAT TO KEEP IN MIND FOR EXCLUSIVE USE PROVISIONS
On behalf of Michael Brooks of Law Offices of Michael A. Brooks on Tuesday, July 17, 2018.
Whether a business is looking to establish a name for itself or is a well-known brand, one important contract that owners look to make with the area’s landlord is an exclusive use provision. The point of this agreement is so landlords cannot lease any businesses that might be competition to the tenant.
As a small shop owner in a specific field, avoiding competitors is crucial towards your business’ survival. If you were to own a store that specializes in office supplies, the last thing you would want is an OfficeMax just a few doors down. Therefore, it is essential that you successfully negotiate with your landlord about a potential exclusive use provision that can benefit your location in the long run. Before you do that, there are a couple of aspects to keep in mind about the landlord’s role in the deal.
Convince the landlord the provision helps both of you.
Most landlords are understandably skeptical when it comes to exclusive use agreements because it can limit their potential tenants in the future. If you were to sell something widely popular that has several big-name competitors, then the landlord is more likely not to sign it. It may not be something that you are able to sign right away if you have a small or newer business.
If your business is profitable prior to or during your lease, then the landlord might be more open to the agreement. If they know that you are successful, they want you there to have guaranteed rent payment for a long time.
Be specific about your competitors.
If you have a small shop or are planning a new business type that is new to the landlord, you must give them the details about what your company does and what companies could hurt your business. You know the field better than they do, so you have to make sure they understand which companies pose a threat.
However, you do not want to be too strict with the request. For example, if your small business specializes in healthy smoothies, you do not want to restrict any restaurant that might have smoothies on their menu. You instead want to restrict places that specialize in smoothies, such as Jamba Juice. Having a wider range of places you consider competition can make the landlord turn down your provision.
What to do if they break the agreement.
Commercial real estate purchases are made to benefit both the tenant and the landlord. If your business slows down, the landlord might be tempted to violate the agreement. They could place a competitor near your location. Make sure your provision is specific in terms of competition and how long an exclusive provision will last. A possible workaround allows lease termination or lower rent if the landlord violates the agreement. This can potentially make the landlord more cautious in their decision to place competition near you.
If that workaround is not in there, you should consider pursuing legal action against the landlord to receive the proper compensation for lost business.