Your Permitted Use Clause-Not A Simple As You May Think!

Many tenants think that the permitted use clauses in their commercial real estate leases are simply loose descriptions of what the tenant intends to do in the premises. They will look at the clause and say to themselves “that is a pretty decent description of my business”, and they don’t think to further negotiate the language. However, in reality, the permitted use clause is a limitation on what you can do in the premises. If it doesn’t say it in your permitted use clause, then you probably can’t do it. For instance, if you have a permitted use clause that says the premises can be used for “an Italian restaurant specializing in pizza and pasta”, then you can’t simply open up a french restaurant or a hamburger restaurant if your Italian restaurant isn’t doing so well, or if you simply decide that another restaurant type might be a better business model for you. Without the landlord’s permission, you actually can’t open any type of business in the premises except for an Italian restaurant specializing in pizza and pasta. What’s worse is that, if you haven’t negotiated that the landlord’s consent to a change of use may not be unreasonably withheld, then the landlord doesn’t even have to be reasonable about disallowing your use change.

If your business isn’t making it, or you want to move or retire, the landlord doesn’t have to let you assign or sublease your premises to another tenant unless they are going to use it as an Italian restaurant specializing in pizza and pasta. Commercial real estate leases, especially retail leases, are fraught with issues like this. Make sure that you think about these clauses instead of making the mistake of assuming that they are just loosely descriptive in nature. For more tips on negotiating commercial real estate leases, see my blog at http://www.langertlaw.com.

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About marylandcommercialleaseadvisor

I am a veteran negotiator that has done hundreds of retail, office and industrial leases throughout the United States. I have been a licensed Maryland attorney since 1985, and a licensed commercial real estate broker dating back to 1991. I have served as an expert witness in commercial real estate matters on multiple occasions, and have been a national instructor on real estate leasing issues, retail investments, and distressed commercial assets and REO's. From 1995-2004, I served as the head leasing attorney for the eastern United States for Glenborough Realty Trust, a $2.5 billion diversified REIT that was traded on the New York Stock Exchange. I offer a full spectrum of expert leasing services to landlords and tenants of all types. I am well trained in site location, and I can find the perfect location for a tenant. I can negotiate the business terms with the best of them, PLUS I am an accomplished leasing attorney that has negotiated against many of the best leasing attorneys in the nation. I have negotiated leases for/with companies such as Lord and Taylor, Circuit City, Starbuck's, Outback Steakhouse, Hometown Buffet, Popeye's, Chipotle, U.S. First National Credit Union, Merrill Lynch, New York Life, Bella Photography, Parsons-Brinckerhoff, Caterpillar, Fed Ex, Clear Channel Communications, and many other noted national and regional companies. I have also worked with scores of local regional tenants. I have also developed and leased out a shopping center, and have been a commercial tenant upon at least three occasions myself. I also spent four years as a commercial construction and permanent lender for a large bank. So, I understand real estate leasing from virtually all sides of the deal. That enables me to negotiate win-win deals for clients of all types. I am available as a broker, attorney, and/or consultant to landlords and tenants alike.
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