Landlords are limiting Exclusives uses

There are lease strategies that a landlord can use to reduce the scope and impact of an exclusive and so reduce the number of problems an exclusive can create.


from Commercial Leasing & Management Toolkit, June 2004


"A landlord giving an exclusive to a tenant doesn't have to be an all-or-nothing proposition or create many problems. These lease strategies include:


* Setting four limits on the scope of the exclusive;


* Exempting seven types of tenants from the scope of the exclusive; and


* Voiding the exclusive in eight circumstances.
Exempt 7 types of tenants:


The exclusive will apply only to a competing business. So the landlord can reduce the impact of the exclusive by exempting the following tenants from the definition of a competing business:
(1) Existing Tenants

Exclude all existing tenants from the exclusive, whether they currently engage in the business covered by the exclusive or not. This is important because an existing tenant's lease may be vague in detailing how the tenant can use its space. So the existing tenant may be able to change its product line in the future and sell the same product as the exclusive tenant-thereby violating the exclusive.
The landlord may also want all existing tenants' spaces to remain exempt from the exclusive even if they decide to relet their spaces when the current lease term ends. It doesn't matter whether or not they have a renewal option in their leases. Otherwise, the exclusive could prevent the landlord from keeping a desirable tenant in its space.
(2) Assignee or Subtenant of Existing Tenant

The landlord should exempt all existing tenants' assignees or subtenants from the exclusive, even if they're in a different business from the existing tenant. This allows an existing tenant who doesn't engage in the exclusive use to assign or sublet its lease to someone who may compete with the exclusive tenant. If the landlord does not do this, it would have to police existing tenants to limit their assignment or sublet rights. If the landlord tries to do this unilaterally, the existing tenant could claim that the landlord is violating its lease by cutting back its existing rights.
(3) Replacement for Existing Tenant that's No Longer a Competitor


The landlord may have an existing tenant that uses its space primarily for the exclusive use that was granted the newer tenant. If the space occupied by the existing tenant is no longer being used primarily for that exclusive use (because the existing tenant changed its use, moved out, or closed down), the landlord will want the flexibility to maintain the center's current tenant mix. So say that in these circumstances, one new tenant will be exempt from the exclusive and can use its space (which may be located anywhere in the center) for the exclusive use.
To make this exemption acceptable to the exclusive tenant, agree to replace the exempt tenant with a smaller new tenant. For instance, a 10,000-squarefoot exclusive tenant may not feel threatened if a 2,000-square-foot existing tenant is replaced by a tenant of a similar size or smaller.

(4) Anchor Tenants


The landlord should exclude any anchor, variety, specialty or other large store above a certain size (in square feet) from the exclusive.
Since these stores typically are unwilling to limit the wide variety of products they sell, an existing exclusive may prevent landlord from adding a new big store to the center.
(5) Small Tenants


The landlord should exempt tenants below a certain size (in square feet) from the exclusive. Small spaces are typically the toughest spaces to rent in shopping centers. And tenants in these spaces shouldn't pose a competitive threat to larger tenants.
(6) Tenants for Whom Exclusive Use Is Incidental


Like small tenants, tenants that engage in the use prohibited by the exclusive on an incidental basis should be exempted from the exclusive.
These tenants shouldn't pose a competitive threat to the exclusive tenant because their volume for that use is small scale. Without this exemption, landlord could have trouble renting space to tenants who engage in the exclusive tenant's use only as an incidental sideline to their businesses but consider the use important. Define an incidental use on the basis of a percentage of gross sales or space dedicated to the use, or a combination of both.
(7) Rogue Tenants


Some tenants may violate the use restrictions in their own leases as well as another tenant's exclusive. Landlord should exempt these rogue tenants from the exclusive. Otherwise, even though the landlord is not at fault, the exclusive tenant can still resort to its remedy against the landlord. A savvy tenant may balk at this exemption unless the landlord agrees in the lease to try to stop the rogue tenant from continuing to violate the exclusive."

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