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Handle California Lease Exclusivity Clauses With Care

A common clause requested in a California commercial lease is a lease exclusivity provision, or “exclusive use provision.” In essence, an exclusive use provision means that the landlord agrees to not rent property in a multi-unit commercial property (such as a mall or shopping center) to another business that offers the same goods or services. For example, a coffee shop in a busy office park may want an exclusive use provision saying the landlord will not rent to a competing coffee shop, thereby splitting the customer market for the first coffee shop.

This, of course, limits the landlord’s ability to find future tenants and sources of revenue, but many commercial tenants – from Mom and Pop operations to national chains – will demand such provisions before signing a commercial lease. Such a demand can and should certainly be taken into account in negotiating rent, as the tenant is getting more value with such a clause That said, simply refusing to include exclusive use provisions in all leases may not be an option for landlords. But such clauses should be carefully and thoughtfully drafted to avoid costly problems down the road.

The Danger of a Poorly Written Exclusive Use Provision

Many of the problems that we see with exclusive use provisions arise when they are vague or unclear. For example, if a tenant is a high-end jewelry dealer specializing in diamond engagement rings, and asks for a provision prohibiting renting to “any direct competitors,” a disagreement may arise over what is included in “direct competitors.” Does another jewelry store that specializes in hand-made bracelets and necklaces qualify? How about a store that primarily sells women’s clothing but has a rack of jewelry?

In agreeing to an exclusive use provision with a tenant, work with an attorney to draft language that is not only clear in what types of other tenants it covers, but which also protects your interests to lease to the widest variety of tenants possible. You might even request the tenant list all of the businesses they are specifically concerned about (e.g. specific restaurants or clothing stores) and attempt to limit the clause to those businesses. Or, more broadly, you can work to make the exclusive use provision as specific as possible, e.g. “other restaurants primarily selling prepared vegetarian meals.”  

In all matters, your attorney can guide you in the negotiating and drafting of lease terms that protect your interests and limit liability risk down the road.

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