June 27, 2025
In multi-tenant retail and commercial centers, competition for customer traffic is increasingly fierce. As a result, tenants often seek assurances that they won’t be adversely affected by competitors operating in the same development. One of the primary tools tenants use to secure such protection is the exclusive use provision in a commercial lease.
Though common, these provisions are often the subject of intense negotiation, and even litigation, because of their significant implications for both a landlord’s leasing flexibility and a tenant’s sales performance.
This article offers a practical overview of exclusive use provisions and highlights key considerations for tenants and landlords, illustrated through a recurring example of a tenant specializing in the sale of desserts.
WHAT IS AN EXCLUSIVE USE PROVISION?
An exclusive use provision restricts the landlord from leasing other space in the same development to another business that competes with the protected tenant. Such provisions are most common in retail shopping centers and mixed-use projects, where tenant composition and customer traffic are closely intertwined.
- Example: A bakery tenant signs a lease to operate a shop selling desserts, including cakes, cookies, and pastries. The lease includes the following exclusive use clause: “Tenant shall have the exclusive right to sell desserts, including but not limited to cakes, cookies, cupcakes, and pastries, for on-site or off-site consumption, and Landlord shall not lease to any other tenant whose primary use includes the sale of desserts, defined as more than 25% of gross sales derived from such items.”
Tenants typically seek the inclusion of an exclusive use provision to protect their customer base and financial investment. Landlords on the other hands, must balance these desires with their own goals of maintaining leasing flexibility and building a diverse tenant roster.
THE TENANT’S PERSPECTIVE – THE POWER OF A STRONG EXCLUSIVE USE
Exclusive use rights are often a material inducement for Tenants to lease at a certain location, especially in shopping centers where proximity to competition business could significantly impact sales and revenue. This is especially true for businesses offering niche goods or highly competitive food items, like desserts, coffee, or sandwiches.
From the Tenant’s perspective, a well drafted exclusive use provision can:
- Protect against internal competition within the center. For example, for our desert shop tenant, competing businesses selling similar treats like cupcakes or cookies;
- Justify rental rates and investments, including build-out costs and brand promotion;
- Protect brand integrity, market position, and reduce business risks associated with overlapping uses
Despite its value, exclusivity without enforceability provides little benefit. As such, Tenants must ensure that any clause includes defined remedies and reflects their actual business model and investment.
THE LANDLORD’S PERSPECTIVE & COMMON PITFALLS
For landlords, exclusive use clauses can help attract strong, well-branded tenants like our dessert shop. However, they also restrict future leasing flexibility. An overly broad restriction (e.g., “no sale of desserts”) may unintentionally block a coffee shop, fast-casual restaurant, or even an ice cream parlor from leasing space.
Landlords must carefully balance the value of offering exclusivity to attract, for example national brands, with the risk of having to reject otherwise desirable tenants in the future. Poorly drafted provisions can also open the door to disputes between existing tenants or unintentionally violate existing exclusive guarantees.
Common Landlord pitfalls include:
- Overbreadth: A broad and vague restriction on “desserts” could unintentionally include businesses selling gelato, smoothies, or even prepackaged cookies. Landlords should narrowly define exclusivity, such as limiting it to “freshly baked goods made on-site.”
- Conflicts with Exiting Leases: New exclusive uses must be audited against existing exclusive uses granted to existing tenants to avoid triggering violations and disputes.
- Enforcement Obligations: Tenants may assume that Landlords have a duty to actively police exclusive violations, however Landlords are typically not required to act unless they are notified of a violation.
To mitigate and manage these risks during the drafting phase of the Lease, Landlords can include carve outs for:
- Incidental sales of restricted items (e.g., a sandwich shop selling cookies not exceeding 10% of gross sales);
- Anchor tenants, grocery stores and tenants with a certain amount of square feet; and
- Existing tenants already operating in the shopping center
KEY DRAFTING AND NEGOTIATION CONSIDERATIONS
Whether representing a tenant or a Landlord, intentional and careful drafting is critical to avoiding ambiguity and disputes. Using the desert shop example, consider the following practice tips:
- Be Specific: Define the exclusive use narrowly and clearly, avoiding broad and generic terms like “desserts” or “baked goods.” Instead, specify “the sale of cakes, cookies, cupcakes, and pastries prepared on-site and intended for immediate consumption.”
- Address Incidental Sales: Allow or strict the incidental sale of competitive items, often based on gross sale thresholds, e.g., “sale of cupcakes not to exceed 15% of gross sales.”
- Include Exceptions for Existing Tenants: Landlords commonly protect tenants already operating in the center to prevent accidental breaches of their rights.
- Coordinate with Permitted Use Clauses: Ensure the exclusive use clause complements the Lease’s permitted use clause to avoid overlapping and conflicting rights.
- Spell Out Remedies: A Tenant’s right should be paired with an enforceable and meaningful remedies, such as rent abatement, injunctive relief, and, in material cases, the right to terminate the lease.
CONCLUSION
Exclusive use clauses can be a powerful tool for tenants like our desert shop to safeguard their investment and customer base. They also can be strategic leasing incentive for landlords. In either case, however, to be effective, they require careful negotiation, precise drafting and clear enforcement mechanisms.
Whether you are a landlord or a tenant, you should be approaching these provisions with diligence, balancing business objections, flexibility, and risk mitigation. A well drafted exclusive use clause can be the difference between a thriving, profitable tenancy and a costly dispute over cookie sales.
The information in this notice is informational in nature and should not be taken as formal legal advice. You should consult an attorney for advice regarding your individual situation.
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Kathleen Millrood is an Associate Attorney with the firm and is a member of the Real Estate, Business Law, and Commercial Finance practice groups.
If you have questions on this article or another business law matter, our attorneys are here to help. Please contact Liff, Walsh & Simmons for assistance.
