Exclude Existing Leases to Narrow Scope of Restrictive Covenant

In a recent article, we gave you two ways to narrow the scope of a restrictive covenant in your leases barring you from renting space at your shopping center to any other store that fits the same general description or category as the tenant's store (see “Expand Prospective Tenant Pool by Narrowing Scope of Restrictive Covenant,” CLLI, Jan. 2006, p. 5). The narrower the scope of the restrictive covenant, the more potential tenants you have. After reading that article, CLLI subscriber John M. Azarian, who is a property manager and developer, gave us a third way to narrow a restrictive covenant's scope.

Make Covenant Not Apply to Existing Leases, Subleases, Agreements

Azarian suggests specifying in the lease that the restrictive covenant doesn't apply to existing leases, subleases, and other agreements. Why? If your center has other tenants with very broad use clauses in their leases—for example, ones that let the other tenants operate “for any lawful purpose”—then those other tenants could easily change to a use that involves selling items or services that the tenant with the restrictive covenant is trying to protect, he explains. Or a tenant with a broad use clause could sublet or assign to a third party that competes with the tenant that has the restrictive covenant, he adds. As a result, you could end up violating the restrictive covenant.

To prevent that, expressly exclude from the restrictive covenant any lease, sublease, or other agreement that's in effect on the lease's commencement date, says Azarian. And make sure the exclusion also applies to any renewals, assignments, or replacements of those leases, subleases, or other agreements, he adds.

To do this, add the italicized language below to the Model Lease Language from the Jan. 2006 article as follows: CLLI0104

Model Lease Language

a. Landlord will not rent space in the Center to another store whose primary use will be the sale of [insert description of protected items] (“Exclusive Items”), provided, however, that this restriction shall not apply:

(i)if such store intends to sell the Exclusive Items solely within a department at its store in the Center and such department is less than [insert #] rentable square feet; or

(ii)to any lease, sublease, or other agreement in existence on the Commencement Date, including, without limitation, any renewal, assignment, or replacement of said lease, sublease, or other agreement.

b. For purposes of this Paragraph, “primary use” means that more than [insert #, e.g., fifty (50 percent)] of such other tenant's gross sales are derived from the sale of the Exclusive Items.

CLLI Source

John M. Azarian, CSM: Owner, The Azarian Group, 6 Prospect St., Ste. 1B-1C, Midland Park, NJ 07432; (201) 444-7111 x 27; AzarianGrp@aol.com.