Prevent Damage to Center from Tenant's Trade Name

If the lease with your strip mall or shopping center tenant doesn't include provisions allowing you to control its right to choose and change its trade name, you are giving it the power to cause serious problems. At the very least, a tenant's illegal or unsuitable use of a trade name may give your center a bad reputation. In the worst-case scenario, it could result in a lawsuit if the tenant's competitor claims that the trade name was stolen from it and believes that you knowingly permitted the trademark violation.

We'll give you Model Lease Language, provided by New Jersey real estate attorney Marc L. Ripp, that you can use to plug loopholes in a lease that would otherwise give your tenant options that could hurt your center's profitability. The “Trade Name” section in a lease should be close to the “Use” section, because both sections relate to the manner in which the tenant conducts its business operations at the premises, Ripp notes. Show our Model Language to your attorney before using it to control your tenant's trade name.

Bar Unsuitable and Illegal Use of Trade Names

Don't trust your tenant to pick an appropriate trade name. Tenants sometimes think that picking a trade name that's a takeoff on a competitor's name is clever or a good marketing strategy. But it could spark arguments or legal action from the competitor that will garner bad publicity for your property. Retailers that spend substantial amounts of money on advertising are very sensitive to trademark violations, but even small-town tenants are protective of their trade names, especially in an economy where they have to set themselves apart from competitors just to stay in business.

A tenant's trade name will appear on its storefront, in advertisements, and on your center's signage, which could hurt the center's image if the trade name is inconsistent with its quality or style. Tenants that pick trade names referencing bargains but operate in a high-end retail shopping center could hurt the owner's ability to attract new tenants or customers, and annoy current tenants that chose the center specifically because of its luxury brand.

Another risk of an inappropriate or illegal trade name is damage to your percentage rent. If the tenant's trade name hurts its own business, your percentage rent also will decline. And it could reflect negatively on your center as a whole. Three limitations can help you avoid these problems.

Restrict tenant's discretion. One of the most important things that you can do to prevent trade name issues with your tenant is to make it choose its trade name before signing the lease. You also can make the tenant's use of a trade name other than the one agreed upon in the lease a ground for termination.

Model Language

Tenant must use designated trade name. Tenant shall, throughout the term of the Lease, and any assignment or extension thereof, operate Tenant's business in the Premises solely under the trade name [insert trade name] (Trade Name) and under no other trade name.

Prohibit change without consent. You should specify in the lease that the tenant can operate under only the trade name in its lease unless it gets your written consent to change it.

Model Language

Change with owner's consent. Tenant may not change the Trade Name without Owner's prior written consent, which consent Tenant agrees Owner may withhold or condition in its sole and absolute discretion for any reason at all or no reason whatsoever.

Protect against trademark infringement. Requiring your tenant to state in the lease that it has the authority to use the trade name it has selected can protect you from being held responsible for any trademark infringement. Other assurances from the tenant could include having it run a trademark search to make sure it can use the trade name, requiring it to register its trade name, or getting consent from competitors with similar trade names. And you should require the tenant to defend its right to its trade name if a competitor is using it.

Model Language

Representation. Tenant hereby represents and covenants that at all times throughout the term of the Lease, Tenant has full legal authority to use the Trade Name and the Trade Name does not violate any law, rule, order, or regulation of the federal, state, or municipal government or other duly constituted public authority or the rights of any third party. Tenant, at its sole expense, shall take immediately all actions necessary to protect its authority to use the Trade Name throughout the term of the Lease.

Insider Source

Marc L. Ripp, Esq.: Senior Associate General Counsel, Mack-Cali Realty Corp.; Mack-Cali Centre II, 650 From Rd., Ste. 220, Paramus, NJ 07652-3517; (201) 967-0324; mripp@mack-cali.com.