Permitted Uses: Flexibility and Adaptability

Like the fine jewelry purveyor, it would be worthwhile for a retailer of any product or service negotiating a lease to consider what the logical extensions are for their products over the next several years. Further, the tenant should attempt to incorporate the ability to modify its list of permitted uses to include those uses — both now and in the future — which the tenant utilizes in a majority of its other operations (since, over time, even if the retailer does not operate in other locations at the time it enters into its lease, it may have other locations in the future).

Landlords, by contrast, will want to make sure that any expanded uses for the tenant do not cause a violation of any exclusive-use clause for any other tenant or occupant at the retail facility. In addition, landlords will want to insist that the expanded uses are still within the core business of the retailer (e.g., the fine jeweler would not be permitted to sell popcorn, but the fine jeweler would be permitted to expand its operation to sell jewelry boxes).

Changes in Technology  

Similar to changes in the retail landscape, advances often result in a retailer being required to adapt to a changing technology market, thereby raising the need to implement uses which were not even contemplated at the time the tenant entered into the lease with the landlord. For instance, within the marketplace for the sale of electronics, what might have been a cutting-edge concept of selling Ipods now may be subsumed into "smart phones" and years from now may be incorporated into another form of technology that is not even utilized today. For this reason, when addressing a particular use, the tenant would be wise to be as broad as possible in addressing a particular type of use for the leased commercial space. For instance, a tenant may want to craft their permitted-use clause to include electronic music devices, including, but not limited to, Ipods and other similar or related electronic musical technology.

Without the ability to expand and adapt to an ever-changing technological society, a retailer may be at a competitive disadvantage with many other retailers in the community because their permitted use will not allow them to continue to adapt and change to newer technology that becomes available from time to time. Remember, a permitted use "permits" the tenant to operate for the uses that are specified; it does not mandate that the tenant utilize all of the enumerated uses in the tenant's permitted-use clause in the tenant's business operation. In addition, tenants should carefully review their use clauses to determine if certain newer uses should be incorporated into their "standard"-use clauses, so that they continue to evolve with the changing technology.

Modifications in a Company's Retail Focus and Strategies

As companies struggle to remain competitive and relevant in the retail environment, the permitted-use clauses under their leases need to permit them the flexibility to allow their business strategies to be implemented at their business facilities. Often, the changes in business strategies may be an adjunct to the core business in which the company engages. For instance, the seller of menswear may determine that its clients purchase more goods in a relaxed environment. Therefore, the menswear retailer may wish to establish sitting areas within their premises and may serve coffee (whether by sale or by giving the coffee away) to their customers. By increasing the customers' time within the retail environment, the menswear retailer has determined that the customers will spend more money while in the store and are more likely to return to the store in the future. However, if the permitted-use clause does not allow the retailer to sell or give away, as "incidental" to the permitted use, coffee, tea and candy, or otherwise limits non-selling areas to a certain square footage, the retailer would be prohibited from implementing these new business strategies. If, however, the tenant had reserved the right to sell or give away incidental products, such as coffee, tea or candy, and if the permitted use was negotiated to permit sitting areas, the retailer would be permitted to implement these business strategies without truly affecting the other retailers at the retail facility.

The landlord should be certain to describe in detail what "incidental" means in the context of a tenant's business. The landlord and the tenant should be able to address whether "incidental" is a limit on the total amount of gross sales the tenant may realize from the sale of these items as compared to the sale of the other items which the retailer sells from its location, or whether it refers to a limit on the square footage utilized by the tenant for displaying these incidental items (e.g., no more than 50 square feet).

Ultimately, by reserving its ability to incorporate incidental or "de minimus" uses into the permitted use clause, a tenant can more readily implement its business strategies.

Evolving Retail Environment

Since retail facilities are increasingly becoming mixed-use projects — for example, colleges, hotels, post offices and other similar non-traditional retail spaces — a retailer may want to consider whether the retailer would like to incorporate certain concepts into their use clause in order to benefit from the non-traditional users in the same retail facility.

By way of example, if the retail facility also contains a college that is located on the same site, the retailer may want the ability to sell products that college students might require. Depending upon what these additional products and services are, and depending upon the other retailers located at the site, a tenant may be able to negotiate the ability to sell these additional products and services from their retail facility, even though these products and services are not part of the core products and services that the retailer typically sells.

A tenant should carefully examine the retail environment that exists at the site where their store exists, in order to determine if there are other uses that will specifically apply to this retail environment, and the tenant should attempt to incorporate those specific uses into their permitted-use clauses. Further, as addressed earlier, the tenant should attempt to incorporate certain de minimus levels of sales (i.e., incidental levels of sales of certain items compared to the tenant's sales for other products and services), to address the sale of products that may be important or necessary to meet the evolving retail environment, notwithstanding that those products are not within the core business of the retailer.

Conclusion

By carefully analyzing the permitted-use clause and by strategically crafting the permitted use in a manner that would allow the tenant's use to be expanded to adapt to the ever-changing retail landscape, available technology, retail business focus and strategies and evolving retail environments, a tenant may seek to cause their permitted-use clause to be far more flexible and adaptable to permit the tenant to adjust and prosper in an ever-challenging retail environment.

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Glenn A. Browne, a member of the Board of Editors of Commercial Leasing Law & Strategy, is a principal in the firm of Braun, Browne & Associates, P.C., in Riverwoods, IL. He specializes in commercial leasing and real estate matters.