Commercial Leases: Use Clauses and Exclusive Use Clauses

Commercial leases generally provide for a use and/or exclusive use clause.  The landlord has a legal right to place restrictions on the use of the property, as long as they are in compliance with the law.  Factors that the parties should take into consideration when negotiating use restrictions are the other types of businesses that may be located at the property and local zoning ordinances and laws.  During the course of a lease, the tenant’s business may change or the tenant may wish to use the property for other uses.  The landlord may also want to change the nature of the use of the property.  This will require permission of each party.  In other circumstances, zoning ordinances may prevent the changes in use without the landlord or tenant being able to get a variance from the city or county where the property is located.  This may require legal help.  Use clauses can be complicated.  It is important that all parties understand the lease terms and their obligations and rights including property use restrictions.  You should consult with a commercial real estate attorney when you are entering into a commercial real estate lease or negotiating any changes. 

Types of Use Restrictions  

• Competition and non-compete. The landlord may want to control the type of products sold or services provided.  Also, the landlord may want to restrict the tenant from competing within a certain radius by opening the same business nearby in another building or shopping center.  
• Uses applicable to the neighborhood.  Certain businesses may be offensive to the neighborhood or create noxious smells and odors that create a negative image of the property and could affect the business traffic and revenue of other tenants.
• Environmental.  Some businesses produce environmental hazards and may create a potential for certain environmental risks or hazards.  
• Deed restrictions and prior use restrictions.  Prior restrictions from deeds may be in existence that must be complied with.
• Exclusive restrictions and tenant approval of other tenants. The tenant may want to create an environment free of business competition.

Use restrictions may be critical to the tenant and/or landlord and are a necessary part of commercial lease negotiations.  Parties should take use restriction clauses seriously.  

Use a Commercial Real Estate Attorney 

Because commercial leases are very complicated, you should hire a commercial real estate attorney to negotiate and review the lease for you.  The attorney can explain the lease provisions to you to make sure you understand them clearly.  This will help to avoid disputes that may arise later.