When you buy commercial property, you face many challenges. Among other things, it’s critical to ensure rental of all available space. In some circumstances, this means including exclusive use provisions in the lease agreement. Is that really such a good idea?
Consider situations where a commercial landlord might agree to an exclusive use clause in a proposed lease. Month after month, a broker brings in prospective tenants to look at office space. The landlord can’t understand why no one expresses interest. And, is more than a little bit worried about making mortgage payments without rental income.
Tenant Wants Exclusive Use Provisions
One day, the landlord’s luck finally changes. A young doctor wants multiple offices to set up a new practice. Her specialty focuses on cosmetic surgery, a subspecialty of plastic surgery.
Your attorney works with the surgeon’s lawyer to negotiate a commercial lease. You learn that the doctor wants to add a clause to the proposed lease. Something about an exclusive use provision?
No doubt you’re a bit confused. The first proposal suggests that you promise not to lease space in your building to any other physician. As much as you need the rent checks to come in, it sounds pretty limiting to you.
The second offer proposes that the lease agreement spell out the prospective tenant’s specialty area. Essentially, you’re helping the new doctor keep her competition out of your building.
As always, it is extremely critical to retain the services of an experienced real estate attorney when negotiating commercial leases. You may need a tenant, but not a headache. The language of the agreement could prove critical.
For example, what if you sign a lease agreement giving this particular doctor exclusive use to practice cosmetic services? Could this possibly interfere with a dermatologist who performs cosmetic procedures? Absolutely. What about a spa that offers facials?
The landlord may decide to take the gamble. After all, what’re the chances of another doctor focusing on cosmetic services wanting to move in?
However, take this illustration further. What happens in the case of a strip mall when a retail store or restaurant wants an exclusive use provision?
As you know, commercial leasing represents a competitive environment. On the one hand, landlords need to make money to meet expenses. On the other, empty space keeps shoppers and other visitors away.
Before agreeing to an exclusive use provision, landlords need to think of how it limits them in renting out other space. And, for large rental properties, recordkeeping must be flawless. The risk of putting commercial tenants in with competing businesses could prove expensive.
In some cases, it could take the landlord by surprise. Return to our story about the cosmetic surgeon. The landlord does a thorough inquiry to make sure there is no overlap in services when a dermatologist takes an office on another floor.
The skin doctor assured the landlord he offered no cosmetic services. So, what happens when the cosmetic surgeon learns the new tenant gives Botox injections? Don’t count on a pretty outcome.
If you’re a commercial landlord or tenant negotiating a commercial lease, we can help. Contact the Law Office of Lawrence M. Centanni to schedule an appointment.