Keeping Competitors Out of Your Retail Space

Most stores that lease space in a mall or other commercial area would like a guarantee that the landlord won’t also rent to a competing business.  This guarantee is known as “exclusive use,” and you can negotiate for it in a lease. If you’re negotiating a right to exclusive use, here are 5 main points to consider:

1.         What’s your use? What happens if you re-focus your business and your use changes? Can you still keep out competitors?

2.         What if you sublet some space or assign the lease – does the exclusive use still apply?

3.         If you temporarily fall behind on the rent, do you lose your right to exclusive use?

4.         What about pre-existing tenants? 

5.         What’s your remedy? If the landlord violates the contract and leases space to a competitor, what can you do? Presumably you can sue in court to make the landlord stop, but can you also withhold rent, or terminate the lease? If so, do you first have to prove that you actually suffered financial harm?

The Differences Between an Assignment and Subletting Rental Space

There may come a time during a landlord-tenant relationship when a tenant would like to assign or sublet its space to a third party. While an assignment or subletting space may achieve similar practical results, there is significant legal difference between these two methods of allowing a third party to occupy the rented premises.

An assignment of a lease is a complete transfer of the right to be the tenant under the lease. As such, following the assignment, the new tenant pays the rent required under the lease directly to the landlord and is treated as the tenant under the lease for all intensive purposes. However, the assignor tenant, unless released from liability by the landlord, remains liable for the obligations under the lease if the new tenant defaults. Additionally, the landlord can sue the old tenant for back rent and other obligations imposed by the lease if the new tenant fails to pay or perform as required by the lease. 

When a tenant sublets their rental unit, there is a new lease agreement between the tenant as sublessor and a third party as sublessee for all or a portion of the leased premises. The original lease between the tenant and the landlord remains in place, unaffected by the sublease. In this case, the tenant remains liable for monthly rent under the original lease, while collecting rent from the subtenant under the sublease, which may be more, less or the same as the rent due under the main lease. 

In sum, whether you are a Landlord or Tenant, you should keep these differences in mind when deciding to assign or sublease rental space.