How to keep out competitors if you lease retail space

Most stores that lease space in a mall or other commercial area would like a guarantee of “exclusive use,” meaning that the landlord won’t also rent space to a competing business.

Here are some things to consider if you’re negotiating over such a right in a lease:

What’s the use? The “use” you have in mind should be described in detail, to avoid problems later. For instance, if an ice-cream-cone shop also sells some ice-cream cakes, does that mean that the landlord can’t also rent space to a bakery? If a coffee retailer has “exclusive use,” does that mean that a sandwich shop can’t also sell coffee?

What about pre-existing tenants? A landlord can promise not to rent to a competing business in the future, but what happens if an existing tenant wants to change its business model and start offering competing products?

What if things change? What happens to the exclusive-use provision if the tenant changes its business – say, a toy store decides to focus exclusively on video games instead? What happens if the tenant sublets space in the store or assigns the lease to someone else – does the exclusive-use provision still apply? What happens if the tenant falls behind on the rent – does the tenant lose the right to exclusive use?

What’s the remedy? If the landlord violates the contract and leases space to a competitor, what can the tenant do? The tenant can presumably sue in court to make the landlord stop, but does it also have the right to withhold rent, or to terminate the lease? If so, does it first have to prove that it actually suffered some financial harm as a result?

Spelling all these things out in the lease may take some extra work, but it can prevent a lot of messy disputes down the road.

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