Apply Exclusive to Part of Center Only

Issue to Negotiate

A retail tenant demands the exclusive right to sell a certain product or service at your center. Should you give in to the tenant's demand?

Owner's View

If you're like many owners, you probably dislike giving exclusives for many reasons, such as:

• Keeping track of exclusives at your center can be an administrative nightmare.

• If you unintentionally violate a tenant's exclusive because of something another tenant did or didn't do, you could get sued.

• If the tenant that caused you to violate the exclusive is a rogue tenant that's also violating its lease, you could end up in court battling both the rogue tenant and the tenant with the exclusive.

• You know best which mix of tenants is right for your center, so no tenant should be allowed to limit to whom you can rent space through its exclusive.

Tenant's View

A tenant will argue that it needs the exclusive because its market is limited and any competition in the center would damage its business.

Compromise: Limit Exclusive to Specific Area

If you must give the tenant an exclusive, try this compromise, says Mary Beattie-Binder, senior portfolio counsel of General Growth Properties, Inc.: Make the exclusive apply only to a specific part of the center, rather than to the entire center. For instance, if the tenant is located in a certain wing of the center, the exclusive would apply only to the stores in that wing. Or if the tenant is located indoors, the exclusive would apply only to indoor spaces, not to any outparcels, she says. This compromise gives the tenant some protection against competition. But it also gives you some flexibility to lease to competitors, Binder points out.

You and the tenant will have to choose the part of the center where the exclusive will apply, says Binder. (Our Model Lease Language, below, refers to that part as the “protected area.”) If the lease says that the tenant's exclusive applies to the protected area only, you'll be in violation of the lease only if you rent space in the protected area to a competing business that engages in a use that's covered by the tenant's exclusive, Binder says. To avoid confusion or disputes about the protected area's location, attach an exhibit to the lease that highlights the protected area, she adds.

Add Lease Language

To use this compromise, add the following language to your lease's exclusive use clause, Binder advises: CLLI0052

Model Lease Language

a. Notwithstanding anything contained herein to the contrary, Tenant's Exclusive Right shall apply only to the space in the [insert #] level of the Shopping Center in the crosshatched area shown on Exhibit [insert #] attached hereto (“Protected Area”).

Practical Pointer: A tenant may be unwilling to agree to this compromise if your center is small, notes Binder. It will worry that if the exclusive doesn't apply to the entire center, a potential competitor could end up in a location at your center that's too close to its store, she explains.

CLLI Source

Mary Beattie-Binder, Esq.: Senior Portfolio Counsel, General Growth Properties, Inc., 110 N. Wacker Dr., Chicago, IL 60606; (312) 960-5799; Mary.Binder@generalgrowth.com.