“Understanding the Use and Exclusivity Clauses in a Commercial Property for Lease” written by Mike Marko
Should you have a use clause and exclusivity clause for your commercial property for lease?
Many commercial properties include use and exclusivity clauses in their lease agreements.
As either party can be affected by the existence of these clauses, a careful examination is needed before the signing of the lease agreement. It’s important to ensure that both parties are protected and can benefit from these clauses.
If you’re not familiar with the ways of dealing with the use and exclusivity clauses, then this is for you.
In this article, we’ll help you understand the differences between the use clause and the exclusivity clause.
Two Important Clauses in a Commercial Property for Lease Agreement
In a commercial property for lease, the use and exclusivity clauses are important issues often discussed when negotiating a lease.
Both of these clauses give the tenant an exclusive control to his space in the commercial property. This means that for the property manager, these clauses can serve as a restriction for their own actions.
They can also help expand both you and your tenant’s income. However, giving these clauses come with a risk. This is why you must learn how to differentiate them from each other and determine which is the best to offer for the commercial properties you are managing.
What is an Exclusivity Clause?
The exclusivity clause prohibits the property manager from leasing the property to another similar business type of tenant. This assures tenants that their businesses will be the only ones offering their particular product or service on the commercial property for lease.
This clause also gives the landlord the flexibility to choose different tenants that would rent the vacant spaces. This allows for a variety of goods or services to be offered to the public, which subsequently increases foot traffic and income.
Here’s a sample scenario: a children’s clothing store may negotiate a lease provision that prohibits you from renting your space to another children’s clothing store. However, stores catering to the same products with a different market like a sporting goods retailer or a different type of clothes vendor, like women’s clothes, that have children clothing products to the same market are allowed.
What is a Use Clause?
The use clause informs the tenant of what they can and cannot do when making use of your property. It can also be a restriction on how businesses are conducted in the commercial property for lease.
For example, the property manager may specify that the property can only be used for restaurant space, retail or warehousing. or other specific use. This is an ultimate decision, and thus cannot be changed by the lessee.
This makes it easier for a property manager to find tenants without doing major overhauls or alterations to the property. This prevents potential damages or unwanted happenings inside the commercial property for lease.
Reminders for Using Use and Exclusivity Clause
While use and exclusivity clauses can be of aid to the growth of the landlord and tenant’s business, they can also pose restrictions. This is why it is important to obtain a deep understanding of how the landlord can properly use or apply them.
First of all, you must know and consider the value of your property. Study each clause and determine which one works best for you and your objectives. If you skip this step, there’s a big possibility of losing potential and existing clients.
When negotiating the commercial lease, it’s also best to discuss the clauses with the commercial tenants. Talk about the type of business they are into, and further explain the functions and activities that will be allowed at the property.
When negotiations are made and both parties have come to an agreement, make sure to ask your tenants to sign a legal lease agreement. Doing so will help you avoid future conflicts that may lead to arguments—or worse, legal actions.
Final Thoughts on Understanding the Use and Exclusivity Clauses in a Commercial Property for Lease
In this article, we discussed how the use and exclusivity clauses in a commercial property for lease can be beneficial for both the tenant and landlord. But that’s only when done properly. Otherwise, it would limit the success of the tenants’ business and would limit yours, too, in the long run.
The exclusivity clause gives the tenant the privilege of having no competitors near their rented space. On the other hand, the use clause allows the landlord to state how the commercial property should be used by the tenant.
Keep in mind that when reviewing these clauses, you should aim for the success of you and your tenant’s business. Negotiating these clauses properly is a must for you to be able to improve the quality of strategizing with your tenants towards the success of both businesses.
Please comment below with any thoughts or concerns about use and exclusivity clauses in a commercial property for lease.
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