Add Key Words to Restrict Tenant's Use of Space
You may have many reasons for wanting to restrict a tenant's use of its space. For example, you may want to protect your other retail tenants from competition or preserve your tenant mix. Or you may want to avoid letting the tenant bring in heavy machinery that could damage the space. But drafting a use clause that defines the tenant's use as narrowly as possible won't necessarily restrict the tenant's use the way you want it to.
If your lease is like many we've seen, it may have a loophole that could undermine your intended restrictions. The loophole: Although the lease defines the tenant's use narrowly, it may not adequately protect you because it's missing key restrictive words, says Denver attorney Mark A. Senn.
Missing Words Undermine Use Restriction
When a use clause doesn't have any of the key restrictive words, a court may rule that it's not restrictive at all—it's permissive, says Senn. In other words, the clause merely says what the tenant may sell or do, but it doesn't block the tenant from selling or doing other things.
Example: A lease said that the tenant would use the space “for the purpose of conducting thereon a retail department store for the sale at discount prices of goods, wares, merchandise and services of various kinds.…” When the tenant wanted to sublet to a subtenant that wouldn't use the space as a discount department store, the owner asked the court to block the sublet.
A Wisconsin appeals court ruled that the tenant could sublet the space to a subtenant that wasn't a discount department store. The court said that the use clause was merely “permissive.” That is, the use clause merely described the tenant's intended use of the space; it didn't restrict the tenant to that use. The court added that “[i]f the parties had intended to restrict use of the premises to a retail, discount department store, they could have inserted simple words of limitation” [Rapids Assocs. v. Shopko Stores, Inc.].
Key Words Restrict Tenant's Use
To plug the loophole, put key restrictive words—such as “only” or “solely,” and “for no other purpose” (or “for no other use or purpose”)—into the use clause where you describe how the tenant must use the space, says Senn.
Here's how an owner benefited from using the key restrictive words “for no other purpose”:
Example: The use clause said that the space would be used “for the sale of tacos, enchiladas and related other Mexican foods and for no other purpose [emphasis added].” When the tenant started offering video games in its space, the owner asked a court to block the tenant from operating the video games.
A New York court ruled that the tenant violated its lease by offering the video games. The court said that the tenant was restricted by the lease to using the space as a Mexican restaurant only. Offering video games wasn't essential to operating a Mexican restaurant—rather, it was a different use, which violated the lease [72nd & Broadway Gourmet Restaurant, Inc. v. Stahl Real Estate Co.].
Add Restrictive Words to Lease
To make sure the use clause is interpreted as restrictive, instead of permissive, add the key restrictive words to the use clause. For instance, if you want to restrict the tenant's use to a department store, add the words “only” and “for no other purpose.” For example, add the following italicized words to your use clause, says Senn:
Model Lease Language
The Premises shall be used only as a retail department store and for no other purpose.
Practical Pointer: Make sure the lease says that the space “shall be used”—not “may be used”—for a particular purpose, says Senn. The words “shall be used” are restrictive, he says. But the words “may be used” are merely permissive, he explains.
CLLI Source
Mark A. Senn, Esq.: Partner, Senn Visciano Kirschenbaum, PC, 1801 California St., Ste. 4300, Denver, CO 80202; (303) 298-1122.