USE OF THE PREMISES
Section 9.1 — USE OF THE PREMISES
I cannot stress enough how important the use of the Premises is to both the Landlord and the Tenant. The Tenant wants to sell the broadest possible scope of merchandise which is now or will (in the Tenant’s opinion) in the future be in vogue, in order to carry on its business. The Landlord, however, wants the use clause specifically limited, not only to avoid any overlap of uses among the tenants in its shopping centre, but also to avoid breaching any restrictive covenant (i.e., a covenant in a Lease given by a Landlord to a Tenant whereby that Tenant, and no other tenant, has the exclusive right to sell a specific item or items in the shopping centre) given to any other tenant, and, as well, because the use clause will also govern the use of the Premises in the event of an assignment of the Lease or a sublease of the Premises (unless both the Landlord and the Tenant mutually agree to a change in the use clause), which, of course, is important in the event the Tenant wishes to sell the business.
In today’s changing times, there is difficulty first in determining what the store is and, secondly, attempting to define what it sells. For example, today’s drug stores, in many instances, are becoming large variety stores with a pharmacy; variety stores are becoming junior department stores; junior department stores are becoming department stores; and supermarkets are becoming combination food and general merchandise stores. As well, the concept of “hybrid retailing” has emerged, where a Tenant sells in its Pre- mises goods that are entirely unrelated to one another (such as food and clothing) which makes it that much more difficult for a Landlord to preserve its “tenant-mix” in the Centre. Then, of course, there is the “warehouse outlet” which sells everything imaginable at very competitive prices through large volume purchasing. The tough economic times we have been in have also created a niche for inexpensive items that are super-discounted, often referred to as “dollar stores”, and many landlords are now eager to take them into their Centres.
Let’s examine a number of different types of use clauses with a view to indicating some of the problems inherent in drafting them. Of course, each
use clause should be dealt with on its own specific merits. The headings have been set out in alphabetical sequence for ease of reference.
A Landlord does not want to simply state that the Tenant will carry on the business of an “airline”. Today’s airlines sell far more than airline tickets. Consider the following:
. . . the sale of airline tickets (in accordance with the requisite governmental regulations) and, as ancillary to such principal use, the arranging of hotel ac- commodations, car rentals, telecommunication facilities, packaged tours, theatre tickets and such other travel or other services as are approved in advance in writing by Landlord.
The Tenant, however, should either seek to revise the words “approved in advance in writing by Landlord” to “designated from time to time by Te- nant” or, if that is not possible, to add after the last word “Landlord”, the words “such approval not to be unreasonably withheld or delayed”.
Rather than use a general term such as “art shop” or “art gallery” without further clarification, the items intended to be sold on the Premises should be set out. Consider the following example:
. . . as an art gallery for the sale, at retail, of oil paintings, pictures, frames, art supplies, tapestries, velvet paintings, sculptures, posters and ceramics.
If a Tenant also wants to provide custom framing, it should insert this into the Lease as well. The Landlord, however, may agree to it as an ancillary, rather than a principal, use (on the basis that it doesn’t want the Premises to appear to the public solely as a custom framing store).
A Landlord may insist that the use clause be limited to “the sale, at retail, of a wide variety of bagels”. However, today’s bagel shop tenant sells far more than just bagels. The Landlord could be faced with the Tenant’s proposed use clause as follows:
. . . the sale, at retail, of a wide variety of bagels, bagel sandwiches, pizza bagels, salads, soups and beverages (other than alcoholic beverages) as more fully set out in Tenant’s menu attached as Schedule ‘‘ ”.
With respect to the Tenant’s proposed wording, the Landlord has to determine if any of the items which the Tenant intends to sell breach any restrictive covenant given by the Landlord to other tenants, and, if so, the Landlord has to insert a provision prohibiting the sale of that item by the Tenant. As well, the Landlord may want to limit the items sold by the Tenant.
If the bakery sells more than just baked goods, indicate the items as follows:
. . . as a bake shop for the sale, at retail, of bread, rolls, cakes, pastries, doughnuts and other similar baked goods baked by Tenant [designate whether on or off the Premises] intended for home consumption, and, as ancillary to such principal use, the sale, at retail, in not more than ten percent (10%) of the retail displays within the Premises of (i) cake and pastry decorations and birthday candles, and (ii) party paper products, such as gift wrap, napkins, tablecloths and hats; but only if (iii) the sale of such ancillary items does not result in a breach of any covenant or covenants by which Landlord is or may in the future be bound, from time to time, to other tenants or others in the Centre; and (iv) the business on the Premises shall at all times throughout the Term be and appear to be that of a bake shop.
If the Centre has a store selling primarily doughnuts, then a further covenant can be added to the bakery covenant that “the Tenant covenants and agrees that it will not cause, suffer or permit the Premises to be used exclusively or primarily for the sale or distribution of doughnuts”. With regard to the above proviso regarding restrictive covenants, see my comment under the heading “Drug Store”.
With unisex the prevailing mood of today, it has to be determined whether the barber shop is for men, women or both. If strictly for men, consider the following example:
. . . as a men’s barber shop including men’s hairstyling and, as ancillary to such principal use, (i) the sale, at retail, of men’s hair grooming products, (ii) the sale (and service), at retail, of men’s wigs and hairpieces, and (iii) the right to provide men’s shoe-shines and manicure services within the Premises.
Consider whether men’s wigs and hairpieces are intended to be sold from the Premises, and, if not, expressly exclude the right. Bear in mind that there may be a wig store in the Centre.
The comments made above in regard to a barber shop also apply here.
Consider the following example:
. . . as a women’s hairdressing salon, including women’s hairstyling and, as ancillary to such principal use, (i) the sale, at retail, of women’s hair grooming products, (ii) the sale (and service), at retail, of women’s wigs and hairpieces, and
(iii) the right to provide manicure services within the Premises.
Books and Stationery
Determine whether it is to be a new book store as opposed to a second- hand book store. Is it limited strictly to hardcover books, paperback or both? Will the store be permitted to sell magazines? If so, to what extent and of what type? Will the store be permitted to sell other items, such as stationery? If so, they should be expressly set out.
If food is to be sold within the Premises, specify what type and how it is to be sold, that is, by snack bar, dispensed food machine or automatic vending machine. Set it out in order to avoid a potential conflict with any other tenant selling food elsewhere in the Centre.
Consider the following example:
. . . as a camera store for the sale, at retail, of cameras, projectors, related photographic supplies and accessories, and binoculars and including, as ancil- lary to such principal use, the sale, at retail, of photofinishing, and the right to sell such second-hand cameras, projectors, related photographic accessories and binoculars that have been taken in trade by Tenant in the Premises on the sale of new cameras, projectors, related photographic accessories and binoculars; pro- vided that the display area of such second-hand cameras, projectors, related photographic accessories and binoculars shall not at any time exceed five percent (5%) of the display area of new cameras, projectors, related photographic ac- cessories and binoculars in the Premises.
Note the Tenant’s right to sell second-hand items. The Landlord and the Tenant should agree exactly where in the Premises the items are to be sold. In most instances, it is in the rear of the store, and it should be so designated in the use clause.
Determine first what items of candy are intended to be sold as the term “candy” is very broad. On the other hand, the term “confectionery” is even broader. Is it to be sold by the piece or is it to be prepackaged? Are any other items intended to be sold together with the candy? If so, they should be itemized.
Consider the following example:
. . . as a catalogue showroom facility for the sale, at retail, of those items principally contained from time to time in Tenant’s catalogue or any substitu- tion thereof and which facility is substantially similar in both operation and in breadth of lines and types of merchandise to that of the majority of Tenant’s catalogue showroom facilities in the Province of Ontario so that the Premises
shall appear at all times to the public in the Province of Ontario as a typical catalogue showroom facility of Tenant.
It will be appreciated from the breadth of the above example that there is no limit to the items a Tenant may sell from its catalogue. A Landlord, however, wants to limit the items sold wherever possible, possibly by in- serting a specific provision whereby the items sold are limited to a specific catalogue of the Tenant, and perhaps even attaching the catalogue or re- ferring to it by number in the Lease. However, a Tenant will want the flexibility of revising and updating its catalogue on an ongoing basis to meet changing public tastes. The Landlord may require the proviso regarding restrictive covenants set out under the heading “Drug Store”.
A prudent Landlord will ensure that, if a restrictive covenant is given to any other tenant in the Centre, then the Landlord should expressly set out that the restrictive covenant is not to apply to the catalogue showroom.
If there is to be office space as well as warehouse space within the catalogue showroom, it should be set out within the use clause.
Specify the items to be sold, distinguishing between men’s, women’s, boys’, girls’, infants’ and unisex apparel. Be aware that the word “clothing” is a more specific term than “apparel”. Will the clothing be ready-to-wear, tailored to measure or both? If accessories are to be sold, specify them where possible and determine whether certain accessories which might be included by way of implication, such as hats or footwear, are intended to be included. If they are not, exclude them.
Let’s take as an example a use clause which provides that the Premises are to be used only for “the sale of women’s wearing apparel and acces- sories”. The Tenant starts to sell women’s shoes and the Landlord objects. It has enough women’s shoe stores in the Centre. The Tenant says women’s shoes are an “accessory”, which may lead to a lawsuit in which the Tenant may be successful, as the term “accessory” is not defined in the Lease. If the Landlord had specified that the Tenant could not sell women’s shoes, that would have settled the matter.
What happens if that same store selling women’s wearing apparel starts selling men’s clothing? Is that a breach of the Lease? Interestingly enough, one U.S. court held that the term “ladies apparel” is subject to two inter- pretations, namely, (i) clothing manufactured exclusively for women, and (ii) clothing that may be worn by women, although not expressly manufactured for them. The court picked the second wider interpretation which meant the women’s wear tenant could sell men’s clothing for wear by women (such as pants, jackets, shirts). (See Convert-A-Bed Inc. v. Salem, 360 So.2d 605 (La. App., 1978).)
What a Landlord should do in such a situation is restrict the use clause to the “sale of clothing manufactured exclusively for women” and specifically prohibit the sale of unisex and men’s clothing. A Tenant, on the other hand, should attempt to leave the wording as “women’s apparel”, or “feminine apparel”, or as indicated above, “ladies apparel”, thereby giving it as broad a scope as possible.
Sometimes the area for ancillary items is limited by the Landlord, such as in the following example:
. . . the sale, at retail, of the following men’s items — shirts, ties, sweaters, ready- to-wear jackets and trousers, and, as ancillary to such principal use, the sale, at retail, of men’s cufflinks, tie tacks and tie bars in not more than square feet of the Premises [or, as an alternative, in not more than ten percent (10%) (by square foot area, cubic foot volume, number and prominence of displays) of the retail displays in the Premises].
The Tenant should ensure that the limitation is not so confining that it cannot operate its business efficiently. If the store intends to sell unisex clothing, that is, garments that may be worn by both sexes, a Tenant should also look for a clause which permits it to sell clothing to either sex, not necessarily both. A Landlord, however, will probably insist on a clause that the store appear at all times in the eyes of the public to be that of a unisex store, that is, for both men and women.