Nearly all restaurant leases contain a provision that states the tenant has exclusive rights to sell a certain style of food – e.g. that tenant will be the only one in the shopping center who can sell fast casual Mexican or sit-down Mediterranean or carry-out Chinese. If you do not have an exclusivity provision, there will be nothing stopping the landlord from leasing to a competing business who sells the same type of food you do, just because the landlord may think they make a better tenant, or if they just need to fill the space. For that reason, such a provision is absolutely essential, and it is similarly essential that you protect it.
To that end, you must do more than just make sure your lease has an exclusive use provision, you must consider what the penalties are to the landlord if they violate it. Does it just mean you have a right to get out of the lease? The landlord may, quite frankly, not care much about that. Imagine you are a small Tex-Mex operator and the other company who wants to move in is Chipotle. “Go ahead and leave,” the landlord may say. “It’s been nice having you, but we’re not turning down Chipotle.” You’re left with the choice of leaving behind your business, or going toe-to-toe with a giant – and very likely watching your business die a slow painful death. If the landlord faces real penalties – and by that I mean substantial monetary damages – if it knowingly does something to violate a tenant’s exclusivity rights, however, it is much less likely to think of you expendable if a bigger fish comes along. So make sure the lease has real teeth, ready to bite if your exclusivity rights are violated.
Another thing a tenant must also consider under what terms it can lose its exclusivity rights. Many restaurant leases contain provisions that state you can lose your exclusivity rights if the event of default, either one or multiple. Before you sign your lease you need to understand these default provisions clearly, as your exclusivity may be one of your most important assets. How many defaults will it take for you to lose your exclusivity? What if you cure the default within a reasonable period of time? What if you dispute that there is a default at all? As always, the details of how the lease is drafted are critical.
In sum, you need to make sure your lease includes a clear exclusive use provision, that it causes a real penalty to the landlord if it violates it, and that it cannot be taken from you unreasonably.