Make sure your retail tenant’s “exclusive use” applies to all shopping center parcels.
An “exclusive use” provision in a lease is a retail tenant’s best friend — it prohibits the landlord from allowing other space in a shopping center to be used for a very specific exclusive use, which ideally represents the crux of the tenant’s retail business. For example, a coffee shop tenant’s exclusive use would presumably provide that no other space in the shopping center can be used for the sale of coffee, and it may go into the details of types of coffee, coffee drinks and coffee beans used. So, when negotiating a lease, if a retail tenant is very detailed as to the exclusive use it seeks to protect, it should be all set, right? Think again. Many shopping centers consist of multiple parcels of property, and the retail tenant must make sure that its exclusive use binds all of those parcels and any other users of those parcels during the tenant’s lease. Here are some best practices to ensure just that:
- Obtain a current title report for the shopping center. A title report is ordered through a title insurance company and is a fairly economical way of determining whether a shopping center consists of more than one parcel and, if so, whether the landlord owns all of the parcels. If there is more than one parcel making up the shopping center, make sure your lease defines “shopping center” to include all of the parcels — a legal description attached as an exhibit to the lease is ideal. If any of the parcels of the shopping center are owned by entities other than the landlord, then those entities (even entities who are affiliated with or controlled by the landlord) should sign a joinder to the lease agreeing that their parcels will be bound by the tenant’s exclusive use and providing the tenant with meaningful remedies if any of those parties or their tenants do not comply.
- If obtaining a title report is not feasible, then we suggest adding a specific provision to your lease. In your lease, the landlord should give a representation and warranty as to its ownership interest in the shopping center, how many parcels comprise the shopping center and whether the landlord owns them all. At the very least, the tenant’s request for this type of provision should flesh out whether there are any concerns to be resolved.
- Review online maps and, if readily available, tax maps and surveys to ensure you understand what constitutes the shopping center. We often see leases where the property being described as the shopping center for purposes of the lease document is only a portion of what otherwise appears to be one unified center on the ground. It is not safe to assume they are one and the same. If they are not the same, then the exclusive rights being granted by the landlord may not be as extensive as the tenant expects.
- Record a memorandum of lease against the whole shopping center. A memorandum of lease is a short document reciting the basic terms of a lease that is recorded in the public records with respect to the chain of title for the property encumbered by the lease in order to give constructive notice of the lease. If the tenant has an exclusive use, it should be recited in the memorandum and a legal description of the whole shopping center should be attached. This lets everyone know, including future tenants, about your exclusive use rights. If there are parcels of the shopping center owned by entities other than the landlord, you will need them to execute the memorandum and consent to it being recorded.