How to Avoid Competition

There’s nothing more heartbreaking to a new business owner who has just invested a lot time, money and perspiration into a business then to have a competitor set up shop next door.

It doesn’t matter whether you locate in a small strip mall, or a multi-storied shopping complex, you want to try to do everything you can to avoid competition with a rival business owner. Competition cuts into your profits and can even lead to an unwanted and unprofitable price war.

Use clauses are one of the areas of the lease that can be negotiable and if not negotiated or worded correctly can lead to ‘bad blood’ occurring between a landlord and tenant. It is an area that can also lead to expensive litigation

One of the key elements of any business lease involves the “Use” clause. Use clauses come in 3 types which include:

• ‘General’ Use Clause – This is a general term where a landlord will want to spell out the nature of the products or services you are offering. Generally, most landlords will attempt to narrow your business capacity which can be limiting for you. Alternatively, most tenants want as broad a range as possible to allow for greater flexibility in the goods or services they are selling to maximize profits.

• ‘Exclusive’ Use Clause– An exclusive use clause is the one that should be of paramount importance to you as a commercial tenant. This type of clause explicitly allows you to clearly spell out that you and only your business will be able to engage in a particular business enterprise. This type of clause has to be spelled out very succinctly and cannot be open to interpretation to achieve this objective.

• ‘Restrictive’ Use Clause – This is another key clause found in many commercial lease contracts. In a nutshell, this performs the complete opposite function of an ‘exclusive’ use in that it spells out what products, merchandise or services that you are prohibited from selling or offering.

As these are clauses that are clearly vital to the ongoing success of your business, it can be to your advantage to seek legal advice if you aren’t clear on the language used or the implications of the lease for your particular business.

You also always want to know or ask the landlord how disputes involving any alleged breaches of any of these “use” clauses are handled if a complaint is levied against you, or for a complaint you make against a competitor.

There are really only 2 basic ways in which a breach of any of these clauses can occur. The first would be if someone starts selling some merchandise which they are not authorized to do so under the terms of their lease agreement.

The second breach can occur when a landlord inadvertently allows another tenant to sell merchandise in clear violation of your lease agreement.

You are best advised to not only seek legal counsel when reviewing a lease, but also in referring the matter to your counsel should your complaints not be addressed. When you are considering moving into a new commercial space, it may well be worth your while to talk to other tenants and see if this is a problem which has occurred with any kind of frequency before you proceed further.

Photo by Jeremy Deades.