Minimize Your Risk When Granting Exclusive Use

The right to be the only tenant in a shopping center or mall that sells a certain type of product or operates a certain type of business is highly valuable—and, therefore, very strategically negotiated. If you give a tenant this right (in the exclusive use clause of its lease) it can contribute greatly to a tenant’s success at your center or mall, benefitting you too. However, it also has the potential to undermine your own interests if it precludes you from renting space to tenants that are valuable to you but that sell specific products or services that conflict with an exclusive.

Instead of letting a tenant’s unfettered exclusive use right substantially limit your other lease opportunities, set crucial limits on the exclusive. Among several other ways to reduce the scope of the exclusive, you can use two tactics to help you: 

Tactic #1: Limit exclusive to tenant’s “primary use.” Give an exclusive only for a tenant’s primary use. If you give a tenant an exclusive for a use that’s only a small or incidental part of its business, you may deprive another tenant of a use that could be a key source of business for it. You may even lose a potential tenant that’s unwilling to forgo that use.

Tactic #2: Limit exclusive to portion of center. Have the exclusive apply only to a specific portion of the center, rather than the entire center. For example, if the tenant is located in a certain wing of the center, make the exclusive apply only to the stores in that wing. This way, the exclusive doesn’t limit the pool of available prospective tenants for your center as severely. You and the tenant will have to choose the part of the center—the “protected area”—where the exclusive will apply.

For a Model Lease Clause and effective strategies you can use to reduce the scope and impact of a tenant’s exclusive while still offering it enough benefits to make it worth the tenant’s while to lease from you, see “Negotiate Three Ways to Get Control over Tenant's Exclusive Use Right,” available to subscribers here.