One of our favorite retail leasing issues involved whether a landlord could lease to a froyo shop in the face of an exclusive use provision previously given to an ice cream store. A federal court in Illinois actually had to rule on such a dispute. Baskin-Robbins had an exclusive use provision for “soda fountain items,” and the landlord wanted to bring in TCBY , a retail yogurt store, as a new tenant. The landlord argued that “soda fountain items” really meant “soda fountain items made with ice cream,” but the court found that it meant what it said, and there was no restriction to just ice cream. Therefore, because the froyo shop would be selling soda fountain items, although made with frozen yogurt, the landlord couldn’t lease to TCBY.
When it comes to exclusive use provisions, the best advice to minimize future litigation is “clarity, clarity, clarity.” That section of the lease is not boilerplate. Consider how a judge, years later, is going to interpret that phrase. Tinkering with the language when the landlord and tenant are amicable is the time to clarify, expand, and protect your side.
Why is it so important? First, the landlord or the tenant can utilize the “use” provision to gain a marketing or negotiating advantage during the lease term. The landlord can use it to stop a tenant from expanding its scope of business into another tenant’s space, to terminate the lease, and to obtain money damages. Tenants, too, can and do utilize “use” provisions in their favor. If a tenant is given exclusive rights for a particular use in the shopping center owned by the landlord, then the tenant can prevent the landlord from leasing to competitors. Tenants can also utilize a landlord’s breach of the “use” provision to excuse themselves from having to pay any further rent to the landlord.
To avoid future disputes, the parties should clearly and expressly designate those uses that the landlord cannot allow other tenants to undertake. General, broad descriptions can result in litigation later on, as can uses that are too narrow in their description.
Last, as to landlords: Don't forget about the exclusive use provisions! Keep track of them so you don't unintentionally lease space to a Pilates studio when you've given the health club next door exclusive use for an exercise facility. Not only will you potentially be liable to your old tenant, but to the new one as well.
Jeff Brown is a partner in the firm's litigation department with a practice that focuses on real estate. You can reach him at (310) 282-9418 or firstname.lastname@example.org.