What is an exclusivity clause in a commercial lease?
Sometimes these are referred to as an exclusive use clause. Exclusivity clauses are much more common when leasing a commercial space in a shopping center.
Why is exclusive use important to define in a commercial lease?
The exclusivity clause largely protects the tenant signing the lease and ensures that the shopping center has a vibrant mix of retail stores and restaurants. Imagine that you are considering opening a coffee shop in a shopping center which does not have any other business which is similar. If you are signing a multi-year lease, you would want to ensure that you are the only coffee shop in that particular shopping center. You wouldn’t want to open your doors and then the next month have a national chain come in next store and put you out of business. This statement applies equally to a plethora of different business situations. It is often new or smaller businesses which are more vulnerable to fierce competition. They simply do not have the appropriate amount of capital to whether a storm and long-term dispute over exclusive use within the shopping center.
Important considerations for an exclusive use clause in a commercial lease:
It is extremely important with this type of clause to clearly define what the specific business of the tenant is and also what would be considered an offending competitive business. If this is not clearly defined, the exclusivity clause may possibly fail and the tenant would be stuck in a long-term lease without any remedy. In addition, you would also want to clearly define what remedies the tenant might have if the exclusivity clause is violated. These types of disputes can often take months to resolve and this can be extremely detrimental for a smaller business who is losing revenue. Possible remedies might include abatement of rent or termination of the lease.
As with all commercial lease negotiation, there are many factors at play which determine whether an exclusive use clause is even a viable option for the tenant or the landlord. Much depends on the market, vacancy rates, existing businesses within the center, and the reputation/financial situation of the business attempting to lease the space. Contact my office if you would like to discuss the specific facts surrounding your commercial lease.
Ryan C. Young | Commercial Lease | Richmond, Virginia Attorney