The Permitted Use Clause – Smothering Restrictions Or Room To Grow?

The Use clause of your lease has as much impact on your potential for success as the financial terms of the contract.  It has the ability to constrict your growth or let it soar.

Case study:  a young couple was in escrow to buy a popular independent coffee house in the North County area of San Diego, California, with barely nine months left on the lease.  They engaged my services to negotiate a fresh lease term.  They wanted to get favorable terms for a new five year lease but they also expressed consternation over restrictive permitted use language in the existing lease. 

To protect the exclusive use provisions of a national restaurant chain that was located in the shopping center, the existing  coffee house lease listed specified breakfast menu items that the coffee house could sell that were safely differentiated from the big chain’s menu items, and capped the use clause with the popular “and for no other purpose.”  This put the tenant on a mine field, risking a default if they ran afoul of these restricted uses.  It severely restricted the tenant from trying new menu items and ideas, the key to long term success for any restaurant. 

Our strategy: change the language in the coffee house lease to affirm the exclusive use provision of the major chain restaurant (this placated the landlord) and allow all breakfast items that were not protected in the other lease.   This strategically shifted the burden of proof from the coffee house to the chain restaurant.

The Garcia’s coffee house was named the best independent coffee house in San Diego by a popular local newspaper after just six months of remodeling the store…and the menu.

When it comes to the use clause of your lease, it is better to be in a position to ask for forgiveness than for permission.  

Aaron Weiner, CCIM, CPM, LEED AP
aaron@bailesre.com