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The Reserved Use ' A Modern Approach To 'Use Restrictions'

BY Dale Ahearn
August 18, 2003

Most modern leases contain one or more paragraphs addressing the use of the premises. Pursuant to these paragraphs the landlord and tenant agree, among other things, that the tenant is entitled to use the leased premises for one or more specified uses, an 'Allowable Use.' The parties may also agree that certain uses, 'Obnoxious or Prohibited Uses,' would be inappropriate for the tenant space or for any other space in the shopping center occupied by another tenant. In shopping centers where one or more tenants are acting as the initial anchor, that tenant will frequently require the landlord to agree not to let any other occupant have the right to use any portion of the center for a specified use (an 'Exclusive Use'). Sometimes the exclusive is coterminous with the anchor tenant's Allowable Use, but frequently it will be more narrowly drafted to include only a portion of the Allowable Use. In shopping centers where the initial anchor is a grocery store or other readily definable use and where the tenant has significant bargaining power, this process can be quite simple and, with the use of a well-drafted declaration of restrictions, can be applied with relative ease.

The situation becomes much more complicated, however, in the regional centers commonly known in the industry as 'Lifestyle Centers' and 'Value Mega-mall' developments.

The approach described above can lead to very complicated and difficult analysis and negotiations as the project grows in size and more tenants are added. This occurs because a) these developments typically have regional or national retailers joining the tenant mix at various times throughout the development process, and b) these new tenants will have their own specific requirements with respect to Allowable Uses, Exclusive Uses, and Prohibited Uses. Furthermore, some uses may be acceptable, or even attractive uses for co-tenants, but only if they are located in portions of the project acceptable to the other tenants.

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