USE CLAUSE
Contact Neufeld Legal for commercial leasing legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com
A well-drafted Use Clause is one of the most fundamental and critical provisions within a commercial real estate lease agreement. This clause strictly defines and limits the activities and type of business that the tenant is permitted to conduct within the leased premises. It serves multiple, crucial functions: for the landlord, it provides control over the tenant mix and the overall quality and reputation of the property, ensuring compliance with zoning laws, restrictive covenants, and preventing potential nuisances. For the tenant, the clause must be broad enough to encompass all current and foreseeable aspects of their business operations, while potentially also seeking protective limitations on competitors' uses (exclusivity clauses) elsewhere in the property. A poorly defined or overly restrictive Use Clause can lead to significant disputes, default, or prevent the tenant from adapting their business model, making the negotiation of this section paramount for both parties.
The language employed in the Use Clause often dictates the value and long-term viability of the leasehold interest. Clauses can range from extremely narrow, such as "for the operation of a specific brand retail store selling men's and women's apparel only," to very broad, like "for any lawful retail or office use." Landlords typically favor specific, narrow definitions to maintain tight control and manage co-tenancy requirements, particularly in enclosed malls or shopping centers. Conversely, tenants, especially those planning for future expansion or diversification, will push for the broadest permissible language, often adding qualifiers such as "and for all purposes related or incidental thereto." The agreed-upon scope directly impacts the tenant's ability to sublease or assign the lease, as a narrow use definition significantly limits the pool of potential replacement tenants, which the assignee must also comply with.
Ultimately, the Use Clause establishes the commercial parameters for the tenant’s occupancy and must be negotiated with a clear understanding of the business's current needs and future strategy, while also considering the regulatory environment and the landlord's property-wide objectives. Beyond the primary business activity, the clause often needs to address secondary or accessory uses, such as the right to use common areas for promotions, store opening hours, and sometimes even the level of inventory to be maintained. Careful consideration of this provision is essential to avoid future conflicts and to ensure that the lease supports the tenant’s economic success and the landlord's long-term investment strategy.
For knowledgeable and experienced legal representation in negotiating, reviewing and drafting lease agreements, and protecting your business’ legal rights thereunder, contact lease lawyer Christopher Neufeld at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com.
