Permitted Use……getting it right!
Over the past few months I have come across some interesting cases where clients of mine have had major disputes with their landlords about their Permitted Use.
Permitted Use within the context of a retail lease, defines what a lessee is allowed to sell, so it is very important that the clause is carefully constructed to encapsulate all the desired products and services within the retailer’s range, both now and into the future.
This is especially important for retailers located within shopping centres, due to retail landlords being very particular about their tenancy mix. Generally speaking shopping centre landlords prefer usage clauses to be well defined and very narrow, so that they can control exactly who sells certain products & services.
On the hand smaller independent landlords with one or two free standing specialty shops, are usually a lot more relaxed about Permitted Use clauses, as they are generally not concerned about tenancy mix. If your business is located in free standing specialty shop, nine times out of ten, your landlord would not care nor be aware of what products and services you sell (provided of course they are not wildly out of character).
In a shopping centre environment, the situation is very different – in fact the cases mentioned above, all involved shopping centre landlords trying to restrict retailers from selling specific products and services.
Given challenging conditions facing the retail industry at present, any unnecessary restriction of products and services in your business, could have a detrimental impact on your sales and bottom line profit, so I thought I would explore how you might overcome such problems.
When you next renew your lease or enter into a new lease, one of the very first steps I recommend is to determine what your business is going to look like. By this I mean what are the core competencies of your retail business and what range of products/services are you going to specialise in (eg. I had a newsagent client that was located next to a number of art schools and over time he developed a very close working relationship with these schools and became their primary supplier of art materials. He supplied all manner of items such drawing pencils, fine paint brushes, canvasses, easels etc – he developed a real niche in addition to his more traditional newsagency lines).
Once you have determined what your specific niche is and you are clear about what your business is going to look like, then it is important that you create a Permitted Use clause that covers all of your desired products and services, but has enough flexibility in the wording to ensure that you are not restricted to just those products and services. The reason being that you might like to add or vary your range at a later date, in order to meet future customer demand.
If possible try to use phrases such as “ including but not limited to, retail sale of x,y,z and other products & services normally associated with a…….. ”. Of course you don’t have to use this exact wording, but it is important to use words that are general in nature, so as to give you maximum flexibility.
More often that not, you will have to haggle with your landlord in regard the final wording of your Permitted Use clause, however it is far better to resolve this at the time of negotiating a new lease, rather than becoming embroiled in a major dispute after the lease has been entered into.
What if you have a lease on foot with a Permitted Use clause that is a too narrow and your landlord wants you to reduce or remove certain products/ services that have been part of your range for some time?
Well, this is more challenging, however I wouldn’t immediately give in to your landlord’s demands – when a landlord requests that certain products/services be reduced or removed, it is often a result of another retailer complaining about you selling the same or similar merchandise. If you find yourself in this situation and your Permitted Use clause isn’t strong enough, I recommend that you organise a meeting with your landlord (or Centre Manager/Property Manager) and try to find a compromise. Often there might only be one or two key products that are controversial, so the solution might be as simple as removing these few items from your range or even relocating them out of prominent display. Of course sometimes it’s not that simple to find a quick solution, in which case it may be worth your while to appoint a professional lease negotiator or a good solicitor to help you resolve the dispute.
Of course it is far better to create a good Permitted Use clause at the time of negotiating a new lease, to avoid problems in the future.