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Why non-compete clauses are a good idea for commercial real estate leases

On Behalf of | Sep 28, 2020 | Property Law

If you are considering leasing space in a shopping center or other commercial development, a good move to make is to insist that a non-compete or exclusive use clause be inserted into the lease that you sign. The reason for this is pretty simple: You don’t want to compete for business with your neighbors in the same shopping center complex.

The best non-compete clauses offer tangible benefits to both the tenant and the landlord. Here’s how that can work to both of your advantages.

Tenants can maximize earning potential

Few business markets can support two very similar businesses. For instance, if you are a dentist, you wouldn’t want another dentist to move in two doors down. However, some closely related businesses can actually help one another bring in more business, e.g., a dentist and an orthodontist might develop a mutually beneficial referral system for their patients without ever directly competing with one another.

Landlords benefit from heavy and diverse traffic

This concept is best experienced when the agreement with tenants is that a percentage of the tenants’ sales are directed back to the landlord. But diversity typically is a welcome aspect as long as the businesses are not ill-suited to be side-by-side neighbors. For instance, it would be problematic to open a raucous sports bar next door to a massage therapy spa where the tenant and their clients expect to relax and unwind without the thump of a jukebox or cheering sports fans.

Keep a limited scope on the clause

Any clause that is too restrictive will have an opposite effect than the one desired by both parties. There is no reason that a dermatologist can’t share real estate with a cardiologist, as their practices are not in direct competition with one another.

It is always wise to have any contract reviewed by your business law attorney before you agree to sign. They can then recommend the inclusion or exclusion of any language or clauses that will protect your interests.