Renting to ‘Bank' Could Allow More Uses than Anticipated

If you'd like to rent space to a bank, be careful about what you put in the use clause. Many use clauses say simply that the tenant will use the space as a commercial “bank” or “banking institution,” notes New York City attorney Robert J. Cyruli. But letting the tenant use the space as a “bank” may allow more types of uses than you anticipated, he warns.

Traditionally, a bank is thought of as a commercial depository for money or a place to get loans that's open during conventional business hours, notes Cyruli. However, more and more banks nowadays offer additional products and services—such as insurance and investment products, and discount stock trading services—and engage in international mercantile operations. And that could lead to two big problems for you. First, your costs for running the building or center could increase because the nontraditional bank would most likely be open longer than a traditional bank would be. (Some nontraditional banks operate 24 hours per day, seven days per week.) Subsequently, you may need to supply enhanced and/or after-hours utility and security services. Second, the nontraditional bank might compete with your existing or prospective tenants, warns Cyruli. For instance, if an insurance company tenant at your building or center has an exclusive, it may claim that you've violated the exclusive by renting space to a bank that also offers insurance products.

Draft Bank's Use Clause Narrowly

If you want to rent space to a tenant that follows the traditional bank model, make sure you narrowly draft its use clause and exclude any uses that you don't want it to engage in, advises Cyruli. Then you'll have more control over the bank's use of the space and you'll reduce the risk of competition between the bank and your other tenants, he explains. For example, consider adding the following language to your lease's use clause, says Cyruli:

Model Lease Language

The Premises will be used solely as a commercial depository bank and for no other purpose. In addition to the uses prohibited under Clause [insert # of prohibited use clause] hereof, the Premises will not be used for [insert list of banned uses, e.g., the operation of trading floors or the sale of discount trading services or insurance products].

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Practical Pointer: Also make sure the lease lists the bank's maximum daily hours of operation at the space, adds Cyruli. That way, the bank can't surprise you by operating for more hours than you expected.

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CLLI Source

Robert J. Cyruli, Esq.: Member, Cyruli Shanks & Zizmor LLP, 420 Lexington Ave., Ste. 2020, New York, NY 10170; (212) 661-6800; rcyruli@CSZLAW.com.