Exclusive Use Agreement: Everything You Need to Know
An exclusive use agreement is a contract clause typically used in commercial leases in which the tenant can only use the leased space for a specific purpose.3 min read
An exclusive use agreement is a contract clause typically used in commercial leases. It states that the tenant can only use the leased space for a specific purpose. These agreements are commonly used in shopping malls to only allow a tenant to use a space for one activity, such as a restaurant, an electronics store, or a clothing store, while also restricting other tenants to use their spaces with the same purpose.
Effects and Proper Implementation
The first effect of an exclusive use agreement is that it obviously affects the number of other potential tenants in the shopping mall. If such an agreement is signed, the landlord must be very careful not to break the agreement by allowing a similar business to lease a space. It's crucial that landlords managing large shopping malls have a list of all signed exclusive use agreements in order to avoid any potential conflict of interest in the future.
Not only must landlords be careful not to lease a space to anyone violating a previous exclusive use agreement, but they must also make sure they can properly deal with such a situation. All leases should clearly specify the penalties for engaging in any commercial activity that violates a previous exclusivity deal, and the landlord must stop the violation and apply necessary penalties. For that to work, the exclusivity clause must be very clearly written in the lease contract so there will be no room for ambiguity when dealing with certain situations.
From the point of view of a tenant requesting an exclusivity agreement, the first step is to make sure that the provision in the contract properly does what it's intended to do. A vaguely written clause has the potential to make problems for everyone, leading to conflicts between landlord and tenants. The tenant and landlord must work together to properly define exclusivity in such a way that the business owner is protected against direct competition within the shopping mall and that the landlord is not severely restricted in the new tenants he or she is allowed to accept.
The way the exclusive use agreement can be enforced by the tenant is another vital point. The tenant must make sure that, in the eventuality of a competing business leasing a space in the same shopping center and violating the terms of the exclusivity deal, it has the legal means to enforce exclusivity. This sometimes proves to be a problem because the competing business is not a part of the agreement between the first business and the landlord, leading to technical legal issues.
The clause in the contract that states the exclusive use should have the following:
- Any new leases signed after this deal should have special provisions that clearly prohibit the new tenants to do any kind of business activity that would violate this exclusive use agreement.
- If a new tenant does violate this exclusive use agreement, the landlord is obligated to take action against the competing business within a certain timeframe.
- If the landlord does not enforce the exclusivity clause on the new business, the first tenant should clearly have the right to take certain measures, such as immediately terminating the whole contract or paying a lower amount of rent to cover for the losses caused by the competition.
Advantages of the Exclusive Use Agreement
An exclusive use agreement obviously benefits the tenant because it eliminates the possibility of any direct competition. However, when negotiating such provisions in the lase contract, the tenants make a fair point when stating that the landlord also benefits because exclusivity increases the chances of that business doing well. Some tenants pay an amount of rent based on their gross sales, giving landlords a direct incentive to enforce the exclusivity agreement.
A well-written exclusive use agreement will benefit both parties by providing the business owners a competitive advantage in the shopping center while also giving the landlord the stability and flexibility needed to use the available spaces as efficiently and as profitable as possible. If the tenants are compatible with each other and exclusivity clauses are properly enforced, the result is increased profitability for everyone involved.
If you need help with an exclusive use agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.