Office landlords beware: It’s not just for shopping centers anymore.
nature of office space changes and as the mixed-use concept proliferates, it’s
not surprising that battles over exclusive use rights are spreading beyond
their traditional arena at retail centers. It is common in retail settings for
tenants to typically demand that landlords grant exclusive use rights, so that
the tenant will be the only one at the property selling a certain product or
conventional office building environments seldom required tenants to take legal
measures to protect their market share from their building co-tenants, and, if
they did, written provisions granting these rights were usually fairly simple
growth of exclusive use rights in office circumstances is for the same
traditional reasons as in the retail environment, even if applied in some
unfamiliar ways. Protection from competition allows new businesses to grow and
small businesses to survive. Armed with these use restrictions, aggressive
businesses use their rights to strategically disadvantage competitors. For
example, some retailers want to keep their exclusive rights intact even after
they close their store just to handicap competitors’ stores.
typical retail situation, a shoe store will require the landlord to agree not
to lease to any other business that sells shoes. The same concept may take the
shape of restricting other activities that could hurt a business, for example:
prohibiting businesses that use a lot of parking, such as a fitness center;
degrade the quality of the retail project such as a pawn shop or auto repair
service; or simply don’t mix well, such as second-floor residents who prohibit
noisy morning deliveries to the ground floor supermarket.
same desires and concerns raise exclusive use matters in “creative office”
campuses. For example, a video game company’s “digital/gaming” exclusive use
rights worried a prospective digital ad agency tenant; the prospective new
campus café tenant was concerned about the juice sales by the campus gym; and
an executive suites business required aggressive protective lease provisions to
enhance its operation. Historically, office building property managers didn’t
have these problems. But the rise of creative office space and an increase in
mixed-use projects are driving these trends.
Campuses. Creative office campuses introduce gyms and other non-office
amenities into the office environment, forcing diverse businesses to stake out
competitive protections for themselves, and raising issues similar to those in
retail and mixed-use projects. For example, one Southern California campus has
open fields for office employees to use, but the campus fitness center tenant
has exclusive use rights for athletic activity, so the landlord must limit the
rights of office tenants’ employees to use personal trainers in the open space
Brand/Image. Consumer tech and product companies jealously guard their products
from competitors, enhance their images by publically connecting their brand
identity to trendy real estate campuses, protect against employee poaching by
their tech campus co-tenants, and even worry about competitors finding out
which consultants or partners are visiting their offices.
Suites. The current trend toward flexible work patterns leads to the rising use
of office sharing, virtual offices, and executive suite services that require
restrictions against competitors, and even, in practice, demand limits on
routine office building subleasing and office-sharing arrangements.
Face of Office Space
office use patterns create inconsistent and imbalanced uses. Office spaces are
shrinking and feature open collaborative spaces, causing changes in
circulation, parking and commute patterns, employee density and uses. These
changes, in turn, impact parking areas and the overuse of building services
such as elevators and utilities during off-hours, and even raise unique daily
challenges such as handling a tenant who places a basketball hoop right outside
another tenant’s conference room window,
change creates uncertainty, these trends place additional burdens on landlords
and property managers. When a landlord grants exclusive uses, it assembles a
web of wires on which to trip itself. The burden is on the landlord to be a
careful and organized operator to avoid conflicts between tenants and any
already have to track traditional office building items such as parking spaces
and overlapping renewal and expansion options. Now, exclusive use rights add
another layer. Office building owners, brokers, and tenants are less familiar
with these concepts and often miss — and even noticeably avoid — some of the
complexities that arise. For example, one concerned prospect asked if another
tenants’ exclusive rights would prevent them from conducting even routine
“general office” use! This unfamiliarity and avoidance means mistakes down the
road, whether these are mistakes of potential liability or unwittingly
restricting business opportunities.
changes in the office and mixed-use markets, owners, brokers, and tenants need
to take a page from the retail sphere and give renewed focus to the details of
drafting, managing, and enforcing exclusive use rights.
Heller is an attorney with Gilchrist & Rutter PC, a real estate and
business law firm based in Santa Monica, Calif. Contact him at email@example.com.