Commercial leases are an excellent option for entrepreneurs starting new businesses. They don’t need to struggle to qualify for a loan and have the option of transitioning to a new space later when the company grows.
Occasionally, those building their businesses eventually change how they do business to increase their market share or profit margins. Unfortunately, those renting commercial space may find that a significant shift in how their business functions might actually violate the terms of a commercial lease.
Use clauses limit business functions
Commercial leases are often very lengthy contracts with an assortment of different clauses. Frequently, leases include provisions limiting the use of the commercial space. Use clauses help landlords avoid scenarios in which they have multiple tenants in one retail strip offering the same goods or services.
Landlords may take issue with tenants allowing customers to come to their premises or attempting to manufacture certain types of goods. Changing business functions by moving into another industry or switching from providing goods to services could all theoretically trigger pushback from landlords.
Business tenants preparing to sign new leases may want to negotiate for the removal of use clauses or carefully review exclusive use clauses so that they can shift business functions as necessary. Otherwise, they may need to provide landlords with advanced notice of planned changes and negotiate modifications to the lease when the business model shifts.
Clauses restricting the use of a property are common, and tenants could be at risk of litigation or even eviction if they violate the terms of their leases. Understanding the rules that govern commercial leases can help tenants remain compliant with lease provisions and identify properties that actually fit their needs accordingly.
