Permitted Use, Tenancy Mix and the Anchor Tenant

The role of a tenant’s lawyer is to assist the tenant to get the best lease possible deal. The purpose of this short article is to look at three different aspects that will hopefully be helpful for you as a tenant entering into a new lease, with an emphasis on your proposed use of the building and the importance of the other tenants in your immediate vicinity.

 

First of all, there will be a provision in the lease which will nominate the Permitted Use. Oftentimes this is only partially thought through by a new tenant. The “Permitted” Use is exactly that – namely, that the commercial use for which the Tenant can use the premises is limited to that specified in this clause. It is advantageous to a tenant to have a very wide permitted use so as to provide flexibility if needed down the track.Carefully consider that your business may expand and possibly beyond what is contemplated at the outset. For example, if you sell second hand cars only initially, you may want to have provision in your lease so that you can also perform repairs to vehicles should your business go in that direction. There may be other things required such as additional permits for your extended or alternate use but it is useful to foreshadow organic expansion if you can. If you propose to sell the business later on, also, this may be even more important to a purchaser assignee. These things may be negotiable later, but try to secure terminology which is as expansive as possible up front.

 

The tenancy mix can also have significant commercial implications for your business. If, say, you are in a shopping centre or even in a small group of retail factory outlets, when you move in you might be a high end clothing retailer. What you want to ensure is that no other clothing retailer that sells similar goods to you and who could thus be in direct competition is able to move in during your lease term. Your lawyer can draft a clause along these lines, which can be presented as part of an overall offer to a landlord.

 

A third, but related point, is that of anchor tenants. An anchor tenant is typically a supermarket, department store or service station. As the smaller tenant, your business may leverage directly off that passing customer traffic. You may want to seek the insertion of a clause which will give you the right to terminate, or be appropriately compensated at least, should the anchor tenant leave for whatever reason. Once again, such a request can be a component of your pre-lease negotiations.

 

All in all, a retail lease is a significant commitment. Always be sure to get the advice of an experienced lease lawyer in relation to your personal situation before you sign.

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