In the lease context, the evolution of a retailer is not
something that is necessarily a welcome phenomenon. Landlords and
other tenants prefer the certainty of status quo. Evolution of a
retailer's use signals potential increased competition for
other tenants and also challenges the landlord's ability to
lease other premises.
Getting the right tenant mix is important to both the landlord
and tenant. However, this puts the landlord and tenant at odds over
the use clause.
Landlords want fairly restricted use clauses to provide both
certainty on the uses in the development and flexibility as the
The tenant on the other hand wants a more expansive use clause,
which permits the evolution of its brand while simultaneously
protecting the brand from unnecessary competition.
Depending on the negotiating of the parties, the use clause will
be negotiated to bring certainty to the landlord while providing
the tenant with some flexibility to evolve and expand.
If only it were that easy. The fact of the matter is that there
are many situations where the parties are initially aligned in what
the use clause meant. But, when the facts and the world in general
change since the initial alignment, the landlord and tenant find
themselves at odds over what the use clause means.
Before finalizing a lease, both the landlord and tenant should
keep the following in mind:
Take the time and define the use well. Build
in the ability to expand but allow for some flexibility for the
landlord to lease other premises. This can be achieved by either
allowing for competing uses to be limited to a definite area within
premises or by limiting sales of a competing use to a certain
percentage of sales. Whichever method of measurement you choose,
make sure it can be determined whether a use is within the
limitation or not.
Evolution of the brand and not an individual
store. Tenants, evolve as you must, but know that the
evolution must be throughout your brand across all locations. You
should not be allowed to evolve in one location only. This will be
too restrictive to the landlord and will create uncertainty.
Is an exclusive important or do you just want some
space between you and your competitors? Sometimes all you
need is to have some distance from your competitors. Landlords may
prefer to not lease to a competitor within a certain distance from
Do your homework on pre-existing tenants.
Watch for the ability of tenants to change their use.
Focus on the primary use and ancillary uses usually
tied to the primary use. This is where most evolution
When it comes time to lease retail premises it's important
that both landlords and tenants protect their current business and
their business as it evolves. It's a delicate balancing act for
both the landlord and tenant. The intent is that the relationship
will be a long and profitable one for both parties. Help that
relationship to continue by taking the time and effort to be
thoughtful about the terms in your lease and how they will impact
you not just today but tomorrow as well.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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