Use restrictions are fundamental to any retail lease transaction. A use restriction provision that is not clearly drafted is both problematic and an invitation to future litigation. For example, I recently reviewed a restaurant lease that restricted the landlord from leasing to a “pub style” casual restaurant. There was no attempt to explain what is meant by “pub style,” which unfortunately causes the restriction to degenerate into applying against all casual restaurants. In the specific lease negotiation, the client was not concerned because there were few restaurant pads in the project. One technique often utilized in this context is to add a provision that also specifies a variety of restaurant types that are permitted. An example would be in a restaurant restriction that prohibits “southwestern” food. Without being able to adequately explain what is meant by “southwestern,” the provision was modified by stating that every other specific type of restaurant is permitted, such as Italian, Asian, French, Chinese or other like ethnic food.

The next important concept to address is the remedies of the tenant for a violation. These remedies typically include the right to pay reduced rent and ultimately to terminate the lease. The tenant presumably would also want the right both to enforce its lease provision against the offending tenant and to seek damages against the landlord. Landlords typically require a “rogue tenant” provision, where “rogue tenant” refers to a different tenant that is violating a provision in its lease. Such a provision would prevent the tenant having the benefit of the use restriction from pursuing its remedies under the use restriction, until the landlord has had reasonable time to enforce the restriction against the rogue tenant.

We have seen increasing attempts by tenants to devise creative mechanisms to increase the efficacy of use restriction provisions. For example, landlords will typically grandfather rights of tenants under existing leases. As an aside, we have previously cautioned that the existing leases should be grandfathered and apply not just to the original tenants. If a landlord rightly points out to a tenant that an existing lease’s use clause does not allow the landlord to restrict another tenant’s use under that specific lease because of the open-ended nature of the use clause, a tenant might attempt to include a provision that would require the landlord to withhold its consent to a change of use and even to an assignment or sublease where the landlord’s consent is required under the lease. From the perspective of the landlord, it is important to qualify any such provision to apply only in the situation in which the landlord’s consent to a change of use and/or to an assignment or sublease can be given or withheld in the landlord’s sole discretion. Finally, we have seen tenants try to prohibit the landlord from agreeing to an extension of any grandfathered lease where the landlord’s consent is required to such an extension. The only context in which this provision would apply would be in the amendment of a lease to grant an additional extension, because virtually all leases allow tenants to extend and renew the term without the landlord’s consent. The landlord would obviously not want to limit its ability to extend the term of any existing tenant even under a grandfathered lease in this context.