Author: Aaron Weiner This post originally appeared on Insights and is republished with permission. Find out how to blog with us on theBrokerList.
Lease Intelligence
What’s The Use? Pay Attention…This Is Important!
It is certainly reasonable for a landlord to want to know just who they are entering into a contract with and what business will be conducted in their building after they move in; hence, the permitted use clause of the commercial lease. Most tenants will see their current business described to a “T” on page one of the lease document, say “yep, that’s me”, and sign off on it.
But things change over time. If you are using office space, your business may merge with another professional service company and change the nature of your business. If you are a retailer, you may want to add a complementary product line or service to remain competitive and profitable. But if these changes do not match up with the permitted use spelled out in the lease, you could find yourself in material default of the lease and in hot water with your
landlord.
I have a client in San Diego County who was referred to me when they were about to purchase a coffee house business. They were concerned with the permitted use clause in the existing lease which stipulated exactly what they could prepare and sell from the premises and concluded with the typical caveat “and for no other purpose whatsoever.” This was a problem because my client saw an
opportunity to expand the menu and increase sales but doing so would have been a technical violation of the permitted use provision.
I asked the landlord why the permitted use clause was so restrictive and they said it was to protect exclusive use protections that had been promised a large chain restaurant in the center. After reviewing the exclusive use provisions in that restaurant’s lease, I proposed that the use clause in the coffee house lease be revised to state that they could sell anything
that was not prohibited by the large chain restaurant’s lease. The landlord was satisfied with this. With this newfound freedom, my client expanded the menu, re-energized the business, and was awarded the best coffee house in San Marcos in their second year of operations.
Regardless of whether you are leasing retail, office, or industrial real estate, a more flexible use clause will give you more options down the twisting road of business.
Do you have your own lease challenges that you would like to discuss? Feel free to call me directly or send me an email.
Aaron Weiner, CCIM, CPM, LEED AP
[email protected]
(213) 258-6921
