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Will That Restriction Hold Up?

By Peter J. Marino, Scott A. Miskimon and Lauren H. Bradley
February 28, 2015

For both commercial tenants and landlords, use restrictions are a valuable asset. For the tenant, use restrictions are critical to protecting the value of its business by preventing another tenant from competing for customers in the same shopping center by selling the same or similar goods and services. For the landlord, use restrictions enable the owner to implement its strategy to produce the “tenant mix” it believes will maximize customer traffic and sales, thereby enhancing the value of the property. Given their critical nature to both parties, use clauses, exclusives and prohibited uses are among the most heavily negotiated provisions of any retail lease. As a result, the final draft may contain a number of compromises and vagaries that are understood only by the original parties involved. Moreover, use restrictions are unique due to the frequency with which they are reviewed and referred to during the day-to-day operations of a shopping center, long after the lease has been signed. Use restrictions are a constant topic of conversation among retailers, leasing and management personnel and their attorneys: whether a proposed new tenant is going to create controversy due to restrictions in existing leases, whether to seek or grant a waiver letter to allow a use that would otherwise be prohibited, and so on.

Most disputes over use restrictions are resolved amicably before litigation. However, it is important to understand the legal framework within which the matters would be litigated in court rather than to rely on intuition, even intuition that may have been informed by years of experience in the industry. This article summarizes the most important factors affecting the enforceability of use restrictions, both from a landlord and a tenant perspective.

General Principles of Use Restrictions in Leases

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