The practice of incorporating use restrictions in leases is common by retailers to protect their investments in new stores and improvements to existing stores. However, retailers should consider both property and antitrust issues when drafting and enforcing use provisions of a lease. In addition, use restrictions could be used by disgruntled potential tenants as fodder for litigation if the terms have the effect of excluding tenants from prime locations.
Generally, both property laws and antitrust laws require lease restrictions to be reasonable in terms of their scope and duration. The reasonableness of the terms is generally determined at the time the lease is entered. The applicable statutes and case law vary by jurisdiction, and retailers may need to vary their approach based on the state or states in which they operate. In addition to state laws, retailers must consider federal antitrust laws in evaluating restrictive covenants.
Antitrust analysis is fact specific, so retailers should carefully consider how the law might apply in any given circumstance. For example, a retailer’s risk may be different in a scenario in which a retailer plans to take and leave a store dark for an extended period of time while maintaining the use restrictions in effect, than in a scenario in which a retailer desires to modify a lease to include an exclusive use restriction either mid-term or in connection with a renewal of the lease.