Commercial leases are full of clauses, some of them more easy to understand than others. Still, even if we understand a certain clause doesn’t mean we should use it indiscriminately. Right of use clauses and exclusive causes are two examples of this. The one that applies to a specific situation is wholly dependent on contract negotiations and unique circumstances of the transaction.
That being said, let’s look at right of use vs. exclusive clauses and go over some of the general pros and cons of each. (As well as how lease management software can help.)
Pros and Cons of Right Of Use Clauses
Use clauses dictate how the renter will use the rented space. For commercial real estate, these limitations can directly impact the quality level of your portfolio and tenant happiness. Landlords in particular feel the effects of the latter, but your bottom line and portfolio health are of the utmost concern for all involved.
Here are some of the advantages of right of use clauses:
- Increase your protections for the space
- Broadens potential service and product offerings (compared to exclusive clauses)
- Helps you avoid problem tenants
- Keeps your investment secure
Here are some of the disadvantages of right of use clauses:
- Can deter potentially great tenants
- Can end contract negotiations
- Can cause legal headaches if it’s violated
Pros and Cons of Exclusive Clauses
While use clauses protect the landlord or CRE investor, exclusive clauses give more advantages to the tenant. These types of clauses usually dictate that the landlord or property manager won’t let anyone else in the building (or mall, shopping center, etc.) engage in the same type of business as the tenant.
Here are some of the advantages of exclusive clauses:
- Can help you land an “anchor tenant”
- Builds rapport and trust with the tenant
- Avoids profit cannibalization within the property
Here are some of the disadvantages of exclusive clauses:
- Excludes tenants in the same industry as the tenant with the exclusive clause
- Limits overall portfolio potential
- Restricts the way you use the property
The Best Lease Management Tool for Tracking Clauses
In summary, it’s usually wise to save exclusive causes for only your most powerful tenants with the most income/traffic potential. For everyone else, right of use clauses protect you and your property. With either scenario, investing in commercial lease management software is a wise decision, as it will help you easily organize, track and take notes on every aspect of the lease. Clauses, addendums and other elements will be easily findable and you can easily reference them for future decisions and reference points.
If you’d like to see how Quarem can help you track right of use, exclusive and other commercial lease clauses, request a demo of the tool today.
