here is some Lease Intelligence too many tenants overlook

Published: Tue, 05/13/14

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Lease Intelligence

The Permitted Use Clause - Smothering Restrictions Or Room To Grow?

The Use clause of your lease has as much impact on your potential for success as the financial terms of the contract.  It has the ability to constrict your growth or let it soar.

Case study:  an entrepreneurial couple was in escrow to buy a popular independent coffee house in the North County area of San Diego, California, with barely nine months left on the lease.  They engaged my services to negotiate a fresh lease term.  They wanted to get favorable terms for a new five year lease but they also expressed deep concerns over restrictive permitted use language in the existing lease. 

To protect the exclusive use provisions in the lease of a national restaurant chain that was located in the shopping center, the existing  coffee house lease listed specified breakfast menu items that the coffee house could sell that were safely differentiated from the big chain's menu items, and capped the use clause with the common "and for no other purpose."  This put the tenant on a mine field, risking a default if they ran afoul of these restricted uses.  It severely restricted the tenant from trying new menu items and ideas, the very thing they wanted to do to grow the business. 

My strategy: change the language in the coffee house lease to acknowledge the exclusive use provision of the major chain restaurant (this placated the landlord) and allow the coffee house to sell all breakfast items that were not protected in the other lease.  This strategically shifted the burden of proof from the coffee house to the chain restaurant.

Just six months after remodeling the store and the menu, the business was named the best independent coffee house in San Diego by a popular local newspaper.

When it comes to the use clause of your lease, it is better to be in a position to ask for forgiveness than for permission. 



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 | aaron@bailesre.com | Direct: (310) 445-4303