The Exclusivity Clause Explained (Non Compete Clause)An exclusive clause, or non compete clause, in a retail lease basically states that the landlord will not lease any additional space in the property to businesses competing with yours. Well, competition is somewhat inevitable when it comes to retail stores, so who would qualify as a "competitor" in this situation? What is an Exclusivity Clause Based on?When you sign your lease, you will most likely be asked to describe the "principal business" of your store. This information, also referred to as "primary use," becomes the core of your exclusivity clause as it now prohibits the landlord from leasing space to any other company in the same principal business. Now this is where it gets tricky! One definition of principal business is "deriving more than twenty-five percent (25%) of its gross sales from said principal use." What does this mean? It means that if you are in the principal business of selling "majiggerthings", your landlord would still have the right to lease space to another "majiggerthings"-selling store, as long as no more than 25% of that store's gross sales are derived from selling said "majiggerthings." As stated earlier, retail competition is inevitable to some degree. If landlords would grant 100% exclusivity on any one "principal use," it would be almost impossible to accommodate multiple businesses in the same property. For example, if a sandwich store is granted 100% exclusivity, that would mean that no other establishment in the shopping center would be allowed to sell sandwiches. Well, a sit-down restaurant may offer sandwiches as well, yet they are not in direct competition with our take-out sandwich shop. Landlords try to accommodate real estate exclusives as much as reasonably possible, as the success of every one of their tenants is in their best interest as well. Does an Exclusivity Clause Apply to Anchor Stores?One important point to mention is that exclusivity clauses normally do not apply to the anchor store in the shopping center. To continue our example, a grocery store would be allowed to sell as many "majiggerthings" as it likes regardless of your exclusive. As with all other privileges granted to you by the lease, keeping your non compete clause may be contingent upon your good standing and not defaulting on any provisions of your lease. The exclusive clause has become a relatively standard provision in retail leases, however if it is not a part of the lease you are looking to sign, don't be afraid to ask your landlord to include it. Competition can make or break you in retail so protecting your "principal business" with a non compete clause may help you avoid issues further down the road. From the Lease Agreement:"Provided Tenant has been in good standing and has not been in default during the term of this Lease, whether or not cured, Landlord agrees that it will not enter into any other lease for storefronts in the Shopping Center, which lease shall permit as a principal business (principal business being defined as deriving more than twenty-five percent (25%) of its gross sales from said principal use) in the use clause thereof: [enter the principal use the exclusive is granted for]. This exclusivity clause will not apply to [enter retailer name if any], nor their successors or assigns, or any outparcels, now or in the future.
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