Most landlords are thrilled to get national, name-brand tenants in their shopping centers. In most instances, however, such tenants have substantial leverage in negotiating lease terms and will insist on using their own standard lease form. For most developers, the choice is simple - if they want the tenant, they will agree to the tenant's lease terms. National tenant lease forms often contain broad restrictive or exclusive use clauses, which, if not carefully reviewed and revised ahead of time, can prove extremely difficult to administer over many years and could well result in expensive litigation that can be ruinous for both parties.

In a recent case, a national name-brand seafood restaurant had in its standard lease form an exclusive use clause that allowed it to be the only "seafood restaurant" in the shopping center. The term "seafood restaurant" was defined broadly to prohibit any other tenant from (i) having the words "seafood" or "fish" in its name, (ii) using seafood or fish in its marketing, or (iii) having seafood or fish products constitute more than 20% of the entrée items on its menu or its entrée items by sales, on a dollar basis. Further, although pre-existing tenants were exempted from the seafood restriction, if a pre-existing tenant proposed a use change and the landlord had the right to approve such change of use, then the landlord could not approve a new use that would violate the seafood restaurant's exclusive.

Although the seafood restaurant's exclusive was drafted broadly and could potentially be difficult to administer (for example, how does the landlord determine and enforce another restaurant's seafood entrée menu items and seafood entrée sales to ensure they do not exceed the 20% threshold?), the seafood restaurant was primarily concerned about the competition presented by other seafood-themed restaurants. Since most chain restaurants fall into specific use categories, so long as the landlord did not enter into a new lease with another seafood-themed restaurant, the seafood restaurant exclusive should not have presented problems.

But life is rarely so simple. A few years after the seafood restaurant opened, a pre-existing restaurant tenant (which was not subject to the seafood restaurant exclusive because it predated the seafood restaurant) closed and defaulted on its rent. This restaurant had been a casual grill and sports bar, but at times more than 20% of its entrée items constituted seafood offerings. The pre-existing restaurant assigned its lease, with landlord's approval, to a local restaurant operator specializing in regional seafood fare. The assignment did not impose on the local operator any of the restrictions contained in the seafood restaurant exclusive. When the local operator opened for business, the seafood restaurant filed suit against the landlord and the local operator seeking damages and injunctive relief to force the local operator to abide by the seafood restaurant exclusive. The three parties were eventually able to amicably resolve their dispute. By that time, however, the litigation had lasted over one year and cost the parties tens of thousands of dollars in legal fees each.

The parties could have avoided the protracted and expensive litigation if they had drafted the exclusive use clause more carefully in the first place.

First, the seafood restaurant exclusive was simply too broad in scope. In the past several years, numerous types of restaurants, which are not normally considered "seafood restaurants," have added seafood offerings to their menus. These include everything from casual bars and grills to high-end steakhouses. Under a strict reading of the terms of the seafood restaurant's exclusive, these restaurants could all be considered "seafood restaurants," but that is probably not what the parties intended. The parties should make every effort to draft the exclusive as narrowly as possible to avoid unintended violations by restaurants that do not compete with a seafood-themed restaurant.

Second, the seafood restaurant exclusive in this case did not address whether assignments of a pre-existing lease (as opposed to entering into a new lease) continued to benefit from the exemption the assigning restaurant had enjoyed. In this case, the pre-existing restaurant sold enough seafood to be considered a "seafood restaurant" under the terms of the seafood restaurant exclusive, but was not a typical seafood-themed restaurant, while the local restaurant operator was closer to a traditional seafood restaurant. If the parties had included language addressing whether assignments of pre-existing leases continued to be exempt from the seafood restaurant exclusive, this would have gone a long way to avoiding the dispute.