Sometimes we represent a tenant, most often in a retail setting, needing protection of certain rights to be the sole provider of specific services or products in a given property, or within a radius around a given property. Unless your tenant client is a very strong (and large) tenant, just getting an exclusive use provision is a victory itself (or a challenge). Here are some thoughts on exclusive use provisions, what terms to seek, and what terms you might accept.
Seeking and obtaining the EUP is one challenge, but making it clear and with a scope that makes sense, along with the tools to enforce the provision, are equally important. That EUP is central to your tenant client’s success.
First, since we consider an exclusive use provision (EUP) to be a significant business point, it should be raised early in discussions, much less in negotiations. When an EUP is raised in a lease negotiation (or even in the negotiation of a lease renewal) is extremely important. We recommend that in an Request for Proposal (RFP), if you use one, address the issue at that time. Without the benefit of an RFP and response, request the EUP in the Letter of Intent. If your tenant’s use or services already compete with an existing tenant, you need to know that; and either discuss with your tenant that its exclusive use or services may not be all that exclusive, or disqualify that property at the outset, and move on to others where an EUP is at least possible.
Once that first hurdle is cleared, know your client’s use or services and be able to describe them broadly in your request. This allows lease drafters to tap into a clear description of the use or services and sufficiently cover them as well as other ancillary issues. Getting an EUP is a good thing; getting one drawn too narrowly without full protection to your tenant is disappointing, may lead to disputes, and won’t bode well for the future landlord/tenant relationship.
Third, the scope of protection is equally important. Is it sufficient to protect against a competing tenant in the same property if enlarged/expanded in the future, or would it be wise to bind the landlord to an exclusive use including all other properties it owns or may own in the future within a radius of the subject property? For example, in the case of one of our clients, it’s good to be the only volleyball training center in an industrial park (our tenant leases more than 50,000 sq. ft.), but will that tenant need more protection? Competition (in the form of other volleyball or athletic training and tournament centers) could come from any property in the general area. Knowing your tenant’s “market” from which it draws customers is key in order to choose the proper radius.
Lastly, binding your current or prospective landlord is important: always bind the landlord and all its affiliates, especially if you are working on properties in a radius, in order to include other properties owned, or to be acquired by that landlord. Make sure that the exclusive runs through the lease term and all extensions, whether by option or otherwise. Make sure your tenant can make the clause work, with notice to all of your landlord’s future tenants in their leases (protect against those future subleases too). Most importantly, try and get your landlord to commit to enforce the EUP and prosecute claims against tenants who would violate the exclusive use provision, or somehow get a grant of the landlord’s right to enforce this provision, so your tenant can actually enforce the exclusive in the landlord’s name. Having the exclusive use provision without enforcement rights will not help your tenant if the EUP is violated. Consider adding a clause that a violation of the EUP would cause your tenant client irreparable harm, thus opening the door to seeking injunctive relief against the tenant violating your client’s protected exclusive use.
In sum, seeking and obtaining the EUP is one challenge, but making it clear and with a scope that makes sense, along with the tools to enforce the provision, are equally important. That EUP is central to your tenant client’s success. Treat this provision as extremely important, time your request, and plan accordingly. Bear in mind the parties’ relative leverage and bargaining power. Small (2,000 sq. ft.) tenants rarely have this leverage; larger and better-capitalized tenants will, so use this leverage well and wisely.