The Playbook / Clause 2
Exclusive Use
Tenant Exclusive; Restriction on Competing Uses; Carve-Outs and Remedies
The Exclusive Use clause restricts the landlord from leasing other space in the project to a competing use. Scope, carve-outs, and remedies are the three pressure points: scope is typically defined by reference to a primary-business and sales-threshold test; carve-outs are negotiated to exclude existing tenants and other categories the landlord insists on; remedies are tiered, ranging from injunctive relief and alternate rent through termination after sustained breach.
What the landlord’s form is doing
If agreed to at all (typically negotiated as part of the LOI), Landlord prefers a tightly scoped clause limited to the tenant’s primary product line, excluding incidental sales, anchor tenants, existing leases and their renewals/expansions, and any tenant with a pre-existing exclusive. Landlord wants the sole remedy to be injunctive relief or modest rent abatement, never termination.
Landlord may seek to make the exclusive personal to the originally named tenant and not assignable, and to disclaim any representation about other tenants’ existing or future business at the project.
Landlord may seek to automatically void the covenant if tenant defaults under the lease, is not open or occupying the premises, fails to maintain a certain amount of sales, or a transfer of tenant occurs.
Anticipate the landlord defining the protected “primary use” at fifty percent of gross sales and/or floor area, or substituting a store-category description (e.g., no other “consumer electronics store”). Either device permits substantial competing sales by tenants below the threshold or outside the category; counter with a lower percentage prong plus an absolute square-footage prong.
What tenants should watch for
Building the exclusive
Scope. Define the exclusive in terms of the tenant’s primary business by reference to product categories and a sales-threshold test (e.g., any tenant whose primary business is the sale of [products], or any tenant from which more than [10%] of gross floor area or [15%] of gross sales is derived from [products]). Without a sales threshold, the exclusive can be defeated by incidental sales.
Stores versus sales: cover both. Distinguish an exclusive on competing stores from an exclusive on competing sales, and cover both. An exclusive is only as effective as the restrictions actually written into other tenants’ leases: where existing leases contain no sales restrictions, existing tenants may lawfully sell the protected products, and the landlord (not the competitor) bears the resulting liability. Require a landlord representation identifying any existing leases without use or sales restrictions, and a covenant that future leases will include a restricted-items sales limitation (defined restricted items plus a cap on revenue derived from them) protecting the tenant’s exclusive.
Distinguish a landlord “leasing covenant” from a true exclusive. A covenant that the landlord will not knowingly enter into a new lease with a competitor is personal to the landlord, does not bind third parties, and does not restrict use changes, assignments, or open-use clauses of other tenants.
Recording. Ensure the exclusive is recorded as a memorandum of lease or incorporated into a separate declaration so that it binds successor landlords and provides constructive notice to other tenants.
Carve-outs and conditions
Carve-outs. Identify the existing tenants and any subsequent successors-in-interest, but resist a blanket carve-out for “existing tenants and their renewals/expansions/successors”: narrow to existing leases as written on the lease date, no expansions, no kicker clauses.
Tally the carve-outs before signing. Each landlord carve-out chips away at the exclusive; before agreeing to the final package of carve-outs, confirm the exclusive still serves its intended purpose and protects the tenant’s investment.
Resist automatic-nullity conditions. Resist landlord conditions that render the exclusive automatically null and void. Landlord-side model clauses void the exclusive upon any lease default (regardless of materiality or cure), any assignment or sublease, any failure to operate one hundred percent of the premises, or gross sales below a stated threshold. Limit any voiding condition to a material default remaining uncured after notice, and preserve the exclusive for affiliates and permitted transferees.
Expect an antitrust indemnity demand. Expect a landlord demand that the tenant indemnify the landlord for defense costs and damages if the exclusive is challenged under federal or state antitrust law. Resist the indemnity, or narrow it to final adjudications of violations attributable to the scope the tenant itself insisted upon, excluding the landlord’s own conduct in granting or enforcing other tenants’ rights.
Enforcement and remedies
Enforcement. Tenant should have a tiered remedy structure: notice plus cure period to landlord; if not cured, (i) alternate rent (e.g., percentage rent only or [50%] of minimum rent) until cure; (ii) self-help to enforce against the violating tenant; (iii) injunctive relief; and (iv) after a sustained violation (e.g., twelve months), termination. Reserve the right to sue the violating tenant directly under a third-party-beneficiary or anti-injury theory.
Resist proof-of-damage preconditions to remedies. Landlord-side forms condition the rent-reduction remedy on the tenant first proving a gross-sales decline over a defined violation period in excess of both industry-wide and tenant-historical baselines, and deem the tenant to waive the violation if it resumes full rent.
Verification. Require landlord, upon tenant’s written request, to verify a suspected violator’s gross sales or floor area within a stated period, and provide that the exclusive is deemed violated if landlord fails to respond timely; without a verification mechanic, a sales-threshold exclusive is difficult to police.
Rogue-tenant cure periods can stall your suit. A landlord “rogue tenant” cure period can postpone judicial enforcement: a federal court dismissed as unripe an exclusive-holder’s suit filed while the landlord’s one-year cure period was still running. Keep any landlord cure period short, and make the alternate-rent remedy self-executing from the date of the violation so the tenant is compensated during the cure period regardless of when suit may be filed.
How this typically gets negotiated
Exclusives are negotiated on three fronts: how the protected use is defined (a primary-business or sales-percentage test), which existing tenants and categories are carved out, and what happens on a violation, typically tiered remedies running from injunctive relief to reduced rent to, after a sustained breach, termination. Each front has traps for both sides, and the interplay with the project's other exclusives is where deals go wrong.
The specific language that resolves each of these points depends on the deal. Talk to Paul about your lease →
How the states treat it
Majority rule. Most jurisdictions enforce commercial exclusive-use covenants between sophisticated parties under a rule-of-reason analysis.
Antitrust considerations. Exclusive use covenants of unusual scope or duration, or those imposed by an anchor with market power, can attract scrutiny under federal and state antitrust law (e.g., Sherman Act § 1). The most common challenge fails because exclusives are vertical restraints ancillary to a lease; but tenant counsel should consider scope, duration, and market context when drafting.
REA / recorded restrictions. In many states, exclusives are imposed through a recorded REA rather than the lease, and bind subsequent owners. This may also be done through memoranda of lease. Counsel should review title to verify that no competing exclusives exist.
Notable cases
Walgreen Co. v. Sara Creek Property Co., 966 F2d 273 (7th Cir 1992). Judge Posner held that injunctive relief, not damages, is the appropriate remedy for breach of an exclusive use clause in a shopping-center lease, given the difficulty of measuring damages. Strong authority for tenant counsel seeking specific performance or injunctive relief on an exclusive-use breach.
Winn-Dixie Stores, Inc. v. Dolgencorp, LLC, 746 F3d 1008 (11th Cir 2014). Eleventh Circuit, applying Florida and Alabama law, held that an exclusive on “staple or fancy groceries” depended on a sales-percentage measurement and reversed in part where the lower court applied a square-footage measure. Supports tenant counsel’s preference for sales-based exclusive scope language.
Frisch’s Restaurants, Inc. v. Shoney’s, Inc., 759 F2d 1261 (6th Cir 1985). Useful for the proposition that exclusive use covenants are construed against the drafter and require clear scope language.
Allure Hair Designs & Mini Spa, Inc. v. George, 248 A.3d 488, 2021 WL 211464, at *1 (Pa. Super. Ct. 2021). The landlord breached the tenant’s noncompete by leasing space in an adjacent, commonly owned building to a competing salon; the court rejected as absurd a reading limiting the covenant to the tenant’s own leased premises and affirmed a damages award
Suburban Realty L.P. v. MD Vape & Tobacco, LLC, 2023-Ohio-3198, 224 N.E.3d 598, 2023 WL 5842012. A tenant’s sales in violation of a lease covenant protecting the landlord’s non-compete with another tenant constituted a material breach justifying eviction and refusal of the renewal option; the tenant’s rogue-employee defense failed
Ft. Collins 8, L.L.C. v. Walton Foothills Holdings VI, L.L.C., No. 1:19-CV-00919-LTB, 2019 WL 10301630, at *1 (D. Colo. Aug. 2, 2019). The exclusive-holder’s suit was dismissed as unripe because the landlord’s one-year “rogue tenant” cure period had not yet run; illustrates the enforcement delay embedded in landlord cure periods
Game film: real clauses from real leases
Excerpts from commercial leases filed as exhibits with the Securities and Exchange Commission, trimmed for length. Follow the citation for the full document on EDGAR.
“Landlord covenants and agrees that, during the Term and any extensions or renewals thereof, no additional property which Landlord, directly or indirectly, may now or hereafter own or control, and which is contiguous to, or which is within five hundred (500) feet of any boundary of, the Leased Premises, will be used by a grocery, nutritional supplements, and/or produce store excluding incidental sales (the “Exclusive Use”). … then as Tenant’s exclusive remedy for said Exclusive Use violation by Landlord, Fixed Rent (but not any other sums due from Tenant under this Lease; hereinafter said sums are referred to as “Additional Rent”) shall abate and, in lieu thereof, Tenant will pay one-half (1/2) Fixed Rent (plus Additional Rent), (“Alternative Minimum Rent”) for the period of time during which such violation continues. If any such violation continues for more than eighteen (18) full calendar … months after the payment of Alternative Minimum Rent commences (“Correction Deadline”), then Tenant, at its sole discretion, shall have the one-time right to terminate this Lease”
Why it matters. This grocery exclusive pairs a distance-based restriction with self-executing remedies, cutting fixed rent in half during a violation and giving the tenant a termination right if the violation persists past a hard deadline.
“Landlord shall not permit any other tenant or other user in the Center (or in any other premises owned in whole or in part, or controlled, directly or indirectly, by Landlord or any person or entity which is an affiliate of Landlord outside the confines of the Center, but within a three (3) mile radius thereof) to conduct the Exclusive Use (defined below) either as its principal use or within a kiosk or in an area exceeding the lesser of one thousand (1,000) square feet or more than twenty percent (20%) of such other tenant’s respective premises, sales or inventory (“Exclusive Covenant”) … For purposes hereof, the Exclusive Use shall be defined as the retail sale of sporting goods, athletic apparel, athletic shoes or sports fan licensed products. … tenants such as, for purposes of example and not in limitation, Encore Stores, Lids, Lids Team Sports, Lids Locker Room, Genesco, Foot Locker, Finish Line, Shoe Department, Shoe Show, Rack Room, … Dick’s, Sports Authority and Academy will be a violation of this provision.”
Why it matters. The exclusive reaches three miles beyond the shopping center to landlord affiliates and names specific competing retailers, which removes later argument over what counts as a violation.