Exclusivity rights in a commercial lease restrict a landlord from leasing other space in a shopping center for uses that compete with your business. For example, a sandwich franchisee might negotiate an exclusive use clause prohibiting the landlord from renting another storefront to a business whose primary offering is made-to-order sandwiches. The protection depends on the language negotiated. It will not be granted simply because it was the first sandwich shop to open.
For franchisees investing in a location, that distinction matters. Before signing a commercial lease or franchise agreement, work with your franchise lawyer to understand what your lease protects, where protection stops, and what happens if someone crosses the line.
Identify What You Need to Protect
Think beyond your brand name. What products or services drive your business? Which competing uses could threaten your investment?
Opening a franchise location often requires substantial spending on permits, design, and construction, as well as rent obligations. An exclusive use clause can help protect that investment against competition within the same shopping center. It does not solve all your problems, but it can address one important risk: your landlord putting a direct competitor nearby.
Use your business model to guide the negotiation. For the hypothetical sandwich franchisee, protection against “another restaurant” and protection against “a business primarily selling made-to-order sandwiches” will have very different scopes.
Define the Protection Clearly
The landlord has competing priorities. You want room to build your business; the landlord wants flexibility to fill vacant space. Expect negotiations over which businesses count as competitors and which activities remain permissible.
Your franchise attorney should help turn your expectations into specific language. Questions to resolve include:
- Which products, services, or business categories does the restriction cover?
- What property falls within the protected area?
- What exceptions limit the protection?
- Does the language address the competition that actually concerns you?
- What happens if the landlord rents to a competitor covered by the restriction?
Treat these as drafting questions, not assumptions. A reassuring conversation with the landlord is no substitute for understanding the clause you ultimately sign.
Check Your Franchise Requirements
Your lease must work with your franchise agreement, not against it. The franchisor may have approval rights and may require particular lease provisions. Your permitted use also needs careful attention: a clause that accommodates today’s business may not accommodate products or services the franchisor requires later.
For example, a lease permitting only a children’s salon could create problems if the franchise system later requires services for adults. Review permitted use and exclusivity together so that protecting your current business does not unnecessarily restrict its development.
Negotiate Consequences Before a Breach
An exclusivity promise needs an enforcement plan. A landlord might breach the restriction if a new tenant offers enough rent to make that decision financially attractive.
Discuss potential remedies before signing:
- Rent reduction. Negotiated relief may discourage a breach or help offset lost revenue.
- Lease termination. An exit right may be valuable, but relocation can interrupt operations.
- Court relief. A lawsuit may seek to stop the competing tenancy, although litigation can be expensive, slow, and uncertain.
These are not universal solutions. The goal is to negotiate options that make practical sense for your franchise and not to present language that merely sounds strong.
Address a Neighbor’s Unauthorized Competition
It’s also a good idea to think more broadly and do some scenario planning. For example, what if the landlord leases space for a noncompeting business, but that tenant later starts selling competing products?
Some leases attempt to excuse the landlord from liability when another tenant violates the permitted use restrictions. That language determines who bears the risk of the neighboring tenant’s misconduct and deserves close attention.
Your franchise lawyer should examine what the landlord must do in that situation and what protection remains available to you. Do not assume your exclusivity clause answers those questions automatically.
Review Before You Commit
Bring exclusivity into the lease review early. Negotiating leverage varies, and these provisions can be complicated. Experienced franchise counsel can help evaluate the protection alongside your operating requirements and the landlord’s proposed limitations.
You are committing money, time, and years of work to this location. Before signing, know which competitors the lease restricts, which it allows, and what you can do when the promised protection fails.
Experienced franchise counsel can help franchisees establish leases in any commercial location, including malls or shopping centers, while also protecting their interests and brands in the long term.
Contact Lusthaus Law
Lusthaus Law’s website is a resource for New York franchisors and franchisees. We have published two downloadable and complimentary e-books, a video series and our Insights blog is regularly updated to reflect industry trends, legislative updates and recent achievements in client representation.
Contact us today to learn more about how Lusthaus Law P.C. can help you navigate a clear path for your franchise’s successful future.
