Exclusive use clauses and their opposite number, restrictive covenants, have been mainstays of shopping centers since their inception, despite the anti-competitive effect of such provisions. The rationale for the clauses are that they enable shopping centers to offer non-competitive and diversified businesses that serve as many needs of the consumer as is feasible within the economic framework of the center.

While considerable litigation about these clauses has occurred over the years, exclusive clauses generally have achieved their goal of maintaining a specific tenant mix in a shopping center and so maximizing sales and profits for all parties. However, major changes in retailing formats in recent years-particularly the expansion of product lines so that individual stores become small shopping centers themselves-require center owners to develop new approaches for controlling or limiting tenant uses.

One-Stop Shopping
Increasing competition among retailers and the preference of consumers for one-stop shopping has led to a blurring of the distinctions among shopping center tenants. Drugstores that formerly relied on their pharmacies for most of their profits now are miniature department stores. Grocery stores sell a variety of "hard goods" in addition to fruits, vegetables and prepared foods and often include a bank facility and even a pharmacy. The explosion of new technology products can make it increasingly difficult for a shopping center to distinguish among the variety of products when granting an exclusive to any single tenant.

Types of Use Clauses
A use clause in essence defines (or limits) the use to which a tenant may put the leased premises. They are of two types. The first is a "purpose and use" clause. This is affirmative in nature, spelling out precisely the purposes for which the space can be used. The use can be described in general terms (e.g., a restaurant, grocery store, business office, bank, etc.). More often, the use clause is more specific, describing the services that can be performed or the products that can be sold both in terms of category and price.

The second type of use clause is the "exclusion clause," which specifies the particular uses prohibited to the tenant. A tenant generally will prefer an exclusion clause because every activity not specifically prohibited becomes permissible.

Existing Exclusives and Restrictions
The first rule for the shopping center landlord dealing with exclusives is to maintain a detailed record of all those already granted in the center. When a new tenant requests an exclusive, the shopping center's legal counsel should examine existing exclusives to determine if a conflict exists.

In addition, both the landlord and tenant should be aware of any restrictions on the use of the leased premises that arise from sources other than existing leases. Zoning ordinances may restrict the kind of commercial operations that can be carried on, for example, a drive-in restaurant, fast food operation or a manufacturing operation (not usual in shopping centers).

Another type of restriction on the use of property is a covenant affecting title. In unusual cases, the land may be subject to a covenant barring the sale of alcohol or tobacco; this could severely hamper certain types of business operations, including restaurants and supermarkets.

Drafting Exclusive Clauses
The following suggestions can help reduce the chance of litigation and increase flexibility in drafting exclusives.

Try to avoid giving a tenant an exclusive for the sale of a particular type of item. Rather, give the tenant an exclusive for a particular type of operation. For example, a landlord has more flexibility in leasing if a tenant has the exclusive right to operate a supermarket rather than the exclusive right to sell food for off-premises consumption.

Try to include in any exclusive a generic exception for the rights of any preexisting tenant. This can be done innocuously by having the exclusive provide "landlord will not hereafter execute any lease that permits the tenant thereunder to operate as a [identify]."

Avoid drafting exclusives with provisions such as "no other supermarkets shall be operated in the shopping center." The problem with this exclusive is that the landlord will be in default under the exclusive clause if another supermarket is being operated in the center with no legal right to do so under its lease.

Avoid including in an exclusive the words "related items." This ambiguous phrase is impossible to define with precision.

Any exclusive granted to a tenant should be deemed void if the tenant discontinues the exclusive use for a specified period of time.

Exclude Landlord's Other Properties
The landlord should avoid having an exclusive apply to any property not covered by a mortgage on the shopping center. The lender may not deem a lease with such a clause "financeable" because the lender may not be able to enforce the exclusive in the event the lender takes over the center. For example, if a landlord agrees that no property within a mile of the shopping center now or hereafter owned by the landlord will contain a supermarket, a lender cannot be confident that it can comply if it becomes owner of the center.

Change of Use
The parties should consider whether the lease will provide for a change of use during its term. A clause stating that no change of use may occur without the prior written consent of the landlord is virtually meaningless because it gives the lessee no right that does not already exist. This would not be so if a court might imply an obligation on the part of the landlord to act reasonably in withholding consent. However, unlike the cases in respect to assignments and subleases, there appear to be no court decisions that imply such a reasonableness requirement to change of use.

A provision requiring the landlord's refusal of consent to a change of use to be reasonable does give the lessee some bargaining power. A variation of the clause might require the landlord to consent to a change of use if specified conditions were met, for example: that the change of use be within a certain category of uses (e.g., retail uses); that there be no additional risk of environmental contamination; or that any additional insurance premiums required by insurance companies because of the new use be paid by the tenant.

Resolving Conflicts
When a new or existing tenant seeks an exclusive use that appears to conflict with one already granted, the shopping center landlord can attempt one of the following solutions:

• If the center is sufficiently large, the two tenants can be located as far as possible from each other.
• An existing user may be induced to share the use, provided the new user devotes a specified limited amount of space to it.
• An existing user may agree to sharing the use in exchange for a cash payment or a reduction in rent.