Getting Exclusive Use Priority Over Other Tenants
Exclusive use is not just a way to guarantee success for some tenants who want a monopoly so to speak on selling certain goods or services. It’s also a hotly negotiated lease right. Because it’s on the radar for most tenants during negotiations, you might expect that all centers have tenants with exclusives. But exclusive use clauses are not a foregone conclusion, and—especially if you’re new to commercial leasing—you might run into a center that doesn’t have any exclusives.
When you lease space at an exclusive-free center, you not only give up the opportunity to create demand for your business as neighboring tenants can’t offer what you’re offering, but you also take some risks. If a center is so desirable, because of its prime location or the absence of other centers in the area, the owner has a lot of bargaining power to refuse to give any tenant an exclusive. But that doesn’t mean you can’t protect yourself. The key point in this scenario is to draft provisions that address what will happen if there is any future change in the owner’s no-exclusives policy. You can do this by drafting a “springing exclusive”—your best bet for protection when leasing space in an exclusive-free center.
A springing exclusive is one that lies dormant until the owner grants another tenant an exclusive, even though the center is supposed to be exclusive-free. Once this occurs, your exclusive will automatically “spring” into effect. But be prepared for modifications to the springing exclusive clause that the owner is likely to demand.
Unless you have a lot of leverage, you will probably have to agree to some or all of these modifications. A major modification that you should be prepared for is that existing tenants are “grandfathered.” The owner will want you to agree that the center’s existing tenants and their assignees and subtenants won’t be subject to your exclusive. Otherwise, the owner may argue, your exclusive could be violated as soon as it springs into effect if an existing tenant is already selling items protected by your exclusive.
The owner will also want the springing exclusive to be your sole remedy. The owner will probably balk if the springing exclusive is in addition to your rights and remedies under the lease and under the law. Instead, the owner will want the springing exclusive to be your sole right and remedy if the owner grants an exclusive in the future.
For an explanation of the protections you should include in your springing exclusive clause and a model clause you can adapt for your leases, see “Get 'Springing' Exclusive if You Lease Space in Exclusive-Free Center,” available to subscribers here.