Use

Hello landlords and tenants, I’m here to discuss the meaning of “use” in a commercial real estate lease. My name is Jenna Zebrowski and I’m the attorney behind LawByJZ.com. The use is what the tenant is using the space for. It’s business purpose.

The landlord may attempt to restrict what the tenant can do within the leased space, as well as that of any potential assignee or sublessee, it makes sense to define the use as broadly as possible and to make sure that the use is in compliance with local laws and codes, and that it doesn’t interfere with another tenant. If one tenant has the exclusive right to a use in the shopping center, it’s important to make sure that isn’t your use as well.

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Commercial Real Estate Case Study

Use: What Is the Space For?

Patrick had worked in a fried chicken fast-food restaurant since high school. The owner eventually franchised it and Patrick was among one of the first franchisees to buy in.  It was a family business that paid for his daughter’s school tuition. He developed good relationships with his landlords during the decades his restaurants operated in their respective locations.

Or so he thought.  He notices that the sales at one location were consistently trending down.  He visited the location in person and realized that another restaurant had opened up in the shopping center, and it also sold fried chicken.  In fact, it was one of his biggest competitors!  

Patrick wasn’t happy that his sales were being cannibalized, and when he complained to the landlord, he was told that the landlord could rent space to anyone in the shopping center he wanted to.  Patrick was pretty sure that wasn’t the case, and sent his lease to his attorney and asked for help. The use clause solved the problem.

The use is the purpose for which the location can operate, and his use was primarily as a fried chicken restaurant, and in the lease, the landlord guaranteed that he would be the only restaurant that primarily sold fried chicken.  There was another restaurant in the shopping center that was a full-service sit-down restaurant, which had fried chicken on its menu, but its sales of fried chicken were incidental, it sold a lot more and different types of food.  Patrick sometimes benefitted when the restaurant had a wait and people got impatient and came to his location instead.  This competitor did not have an incidental use, and their fried chicken sales were negatively affecting Patrick’s sales.

The landlord didn’t want to terminate the new tenant’s lease, and he didn’t want to lose Patrick’s restaurant, either, so he offered a large rent discount to Patrick for as long as the competition location was operating.  Patrick used the savings on rent to open another location, and after a few years, the competition shut down, because after the novelty wore off, Patrick’s product was superior.