Get Right to Terminate Large Tenant's Lease for Use Change

Owners who lease space to large national retail tenants know that their demands can be hard to resist. Use of the space is the number one concern for these tenants. Often, they ask for flexibility in their use of the space that puts owners at a disadvantage. A lease that allows a tenant to use the space for a wide variety of uses—such as “for any lawful purpose” or “any lawful retail purpose”—can be troublesome.

If you’re faced with a big tenant that demands lots of flexibility in how it can use its space, there is a way you can placate the big tenant while avoiding problems such as violating other tenants’ exclusives or inadvertent competition that diminishes the percentage rent from another tenant. You can negotiate a flexible use clause with the right to terminate the prospective tenant’s lease and recapture its space if the proposed use is unacceptable.

You can set up a large tenant’s use clause to prevent any unacceptable use change that the tenant proposes. One way to do this is to require the big tenant to operate for a specified “primary” use or purpose. For example, you might let the big tenant use its space to sell primarily office furnishings. Then you can add that the big tenant can also use its space for any other lawful retail use. That makes the broader part of the clause apply to uses that are incidental to the big tenant’s primary business. Ask your attorney about using this language:

Model Lease Language

Primary Use. Tenant shall initially open its store for business to the public in the Premises for the primary purpose of [insert primary purpose, e.g., the retail sale of sporting goods] (the “Primary Use”) and, incidentally, for any other lawful retail use not otherwise prohibited herein. Tenant shall devote at least [insert # or % of square feet] of the sales area of the Premises to the Primary Use. Tenant shall not, at any time, use or permit the use of the Premises for any use, sales, or services described in Clause [insert # of prohibited use clause] hereof, restricted by the exclusive or prohibited uses listed on Exhibit [insert #] attached hereto, or prohibited by the Shopping Center’s Governing Documents.

For three more key points to include in your use clause with a big tenant and a Model Lease Clause you can adapt, see “Prevent Detrimental Effects of Large National Tenant's Use Change,” available to subscribers here.