One of the most under-negotiated clauses in leases is the paragraph dealing with Use.  In general, when a landlord prepares a lease it limits the use as much as possible (i.e. “Legal Offices” or “Italian Restaurant”).  However, tenants should always try to negotiate the broadest use clause possible.  The reason for this is that business changes rapidly and flexibility is severely limited with an inadequate use provision.  The ability to change use or sublease space to a different type of business is paramount in any lease.

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In the case of retail the landlord will use “Merchandising” or “Co-Tenancy Agreements” as an argument against flexibility, and in many cases they have to adhere to previously negotiated leases that limit their flexibility. Regardless, the retail tenant should try to get some type of flexibility (“Restaurant” instead of “Chinese Restaurant”).  With Medical and Health companies expanding into retail the ability to include Medical in the use will increase the value of the leasehold.

In an office lease the language should be very broad.  I like to look at it from the standpoint of who the landlord would be willing to lease space to at the time of the lease signing.  Does a landlord really care if an attorney, CPA or real estate office is the tenant when the space is vacant?  I would argue that they don’t.  What about Medical? Is a dental office detrimental to an office building?  Therapist? Maybe, maybe not.  Sometimes the project infrastructure and local code will prohibit certain uses.  Thats why I like to get the most broad clause of all, “Any legally permitted use.”

2 Responses
  1. John,
    Great advice. I rented space in AZ once where the “use” was defined as office and warehouse. We built the space out to include offices and a warehouse but also built a showroom for electronics we installed in new homes. We actually had a run-in with our property manager based on that. They had tried to make us take out the showroom as the lease did not formally permit it. Only by threatening to leave the space were we able to open discussions enough to get the showroom approved. If our broker had followed you advice, this would have been a non-issue.
    Mark Coxon

    1. John Sabourin

      Thanks for your comment Mark. It is amazing how many times I hear stories like that. Use is one of the most important lease clauses, and that is probably why its usually on the first page.

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