Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

Commercial Leasing Law & StrategyKickerFeaturesTopicsCommercial LawSectionsNewsLJN Newsletters

Leasing Covenant Loopholes

By Camilla Titterington
April 27, 2007

Protecting the success of its business is of prime concern to any retailer client in the course of shopping center lease negotiations. A protection commonly found in leases is an exclusive use right granting a tenant either the exclusive right to sell a particular product in a center or the exclusive right to operate a particular business. An exclusive right in a lease is violated any time an occupant of the shopping center fails to comply with its restrictive terms. As such, it places a burden on the landlord to administer and police a tenant's exclusive throughout the term of the lease. Landlords have, therefore, started to move away from granting exclusive rights to giving leasing covenants ' a provision intended to give a retailer the protection for its use while removing the administrative burden from the landlord in enforcing exclusives. However, is the retailer really getting the benefit of protecting its use from future tenants? Below are some considerations to keep in mind when drafting a leasing covenant for a tenant.

Before looking at some protections to be added to a leasing covenant, it is important to clearly understand the differences between an exclusive and a leasing covenant. In its most common form, a leasing covenant is a promise to the tenant by the landlord not to lease to a 'direct competitor.' The primary distinction between an exclusive use and a leasing covenant is that a covenant is made by the landlord only and is only binding on the landlord. An exclusive is binding on all future tenants and the burden is on the landlord to enforce it against future tenants. Unless a leasing covenant is carefully negotiated, a retailer does not have any of the following exclusive use protections in a leasing covenant scenario: 1) remedy in the event of a rogue tenant violation; 2) protection on second-generation space (i.e., assignments or subleases by tenants to a direct competitor); 3) protection for specific classes of use; and 4) obviously, a right to an exclusive if one is granted to another tenant in the future.

This premium content is locked for Entertainment Law & Finance subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
Law Firms are Reducing Redundant Real Estate by Bringing Support Services Back to the Office Image

A trend analysis of the benefits and challenges of bringing back administrative, word processing and billing services to law offices.

Bankruptcy Sales: Finding a Diamond In the Rough Image

There is no efficient market for the sale of bankruptcy assets. Inefficient markets yield a transactional drag, potentially dampening the ability of debtors and trustees to maximize value for creditors. This article identifies ways in which investors may more easily discover bankruptcy asset sales.

Bit Parts Image

Summary Judgment Denied Defendant in Declaratory Action by Producer of To Kill a Mockingbird Broadway Play Seeking Amateur Theatrical Rights

Risks of “Baseball Arbitration” in Resolving Real Estate Disputes Image

“Baseball arbitration” refers to the process used in Major League Baseball in which if an eligible player's representative and the club ownership cannot reach a compensation agreement through negotiation, each party enters a final submission and during a formal hearing each side — player and management — presents its case and then the designated panel of arbitrators chooses one of the salary bids with no other result being allowed. This method has become increasingly popular even beyond the sport of baseball.

Disconnect Between In-House and Outside Counsel Image

'Disconnect Between In-House and Outside Counsel is a continuation of the discussion of client expectations and the disconnect that often occurs. And although the outside attorneys should be pursuing how inside-counsel actually think, inside counsel should make an effort to impart this information without waiting to be asked.