The Dirt Dictionary: Shopping Center Exclusives

There is a special symbiotic relationship between shopping center landlords and tenants, with each looking to the other to promote the “product.” But negotiations of lease terms are often contentious. With RECON in full swing, let’s look at one unique-to-retail hot-button benchmark: exclusives. We’ll have to stick to a bullet-point approach, but hopefully each reader will glean a worthwhile nugget or two. Here goes.

Now is everyone clear as to base definition? “Exclusives”: Tenant is granted the exclusive right to sell certain merchandise lines/items in the shopping center. It is one of the most valuable rights a tenant can have, and typically the prerogative of the majors. It gives great bang for the buck in both short and long term ways: protecting and promoting Tenant’s sales from day one and, down the road (as part of tenant’s all important exit strategy) the lease with an exclusive is deemed more marketable to a potential successor tenant or subtenant.

Landlord’s hate these clauses, as do any number of anchors and co-tenants. It is by definition an anti-competitive clause and, as such, is objectionable in principal to every freedom lovin’ (“I pick my tenants and uses”) (“I need my flexibility”) landlord. But it’s a long-standing reality of shopping center leasing. To attract the majors, exclusives had to be given.

Tips and Traps For Landlords:

• Allow other tenants some limited rights to sell excluded items (so-called incidental sales), i.e.,  right sell the restricted products but not using more than x percent of sales floor area or no more than y percent of sales to come from these items;
• Control the scope of the exclusive-be specific.  (Not just women’s shoes, better women sports/athletic shoes).
• Word Exclusive so it refers to a tenant’s primary business, gives more wiggle room
• Carve out existing tenants and expanded or new anchors
• Exclusive ends if Tenant in default (rent), or if an option to extend is exercised; or where the lease is assigned or subleased, especially if new space use does not include the exclusive use
• Exclusive lapses if Tenant goes dark or stops selling the exclusive item
• Limit liquidated damages for your violation-make cancellation of lease Tenant’s sole remedy

Tips and Traps for Tenants:

While the above amply illustrates a natural antipathy between Landlord and Tenant as to the scope and operation of exclusives, the common thinking is that judicious use of the exclusive is in the interest of both parties, as bringing traffic to the center is their shared goal.

Top “exclusives” tips: clear drafting, narrow definitions, and allowing for reasonable incidental sale carveouts.

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