Question: I’m opening a cupcake store in a shopping center – can my landlord rent the space next door to another cupcake store?
Answer: If you’re concerned about keeping your competitor out of the same building or shopping center, what you’re looking for is an exclusive use clause in your lease.
There are a zillion terms and clauses that you’re bound to encounter in any commercial retail real estate lease. You’ll probably care about 20 of them, and you’ll really fight to negotiate about 10.
The Exclusive Use Clause, or “exclusive” for short, is a fan favorite – here’s what all the fuss is about.
By Pedal Retail Advisors
What is an exclusive use clause?
If a landlord is willing to give you an exclusive, that means that once your lease is signed, they aren’t allowed to lease another space to one of your direct competitors. You, your broker, and your lawyer get to decide what constitutes a “direct competitor” – it is another cupcake shop? Is it any bakery? What about a deli with a bangin’ pasty counter that generates over 20% of its sales from cupcakes and cookies? These are the distinctions you’ll determine in your lease negotiation.
Pretty easy to see why retailers want exclusives, right? But, there are a few important caveats…
Your exclusive use only covers new leases at the project
If there is already a competitor in your building or shopping center, they get to stay. And, depending on your lease (and their lease), it may still be possible for another business to change its use (they used to sell only sandwiches but they’re expanding to sweets) OR to sublease their space to a competitor.
Every lease is different, but most exclusives aren’t bullet-proof.
Remember that your landlord can only grant an exclusive for the property they actually own
That doesn’t prevent another cupcake shop from opening in the shopping center across the street or in the building next door if they’re owned by a different landlord.
While exclusives are really nice to have, you should not expect them to eliminate competition. You WILL have to deal with competitors – that’s just a fact of retailing. You could have the most hype cupcakes on the block, but even your most loyal customers are going to change it up every now and again.
Having an exclusive in your lease is ONE strategy to beat your competition – but it isn’t the ONLY strategy. So, if you can’t get an exclusive out of your landlord, this is not fatal. And if you DID get an exclusive – kudos! But make sure you’ve got other plans to differentiate your business from your competition.
Want to learn more about the good, the bad, and the ugly of the much-hyped Exclusive Use Clause? Commercial broker and Pedal Co-founder Abby Davids break it all down in this video.