5 Dangerous Lease Clauses (Part 1)

Part 1.  The Usage Clause

In a typical lease negotiation, the parties, the attorneys, and the brokers often focus only on the key financial aspects within the lease document.  Watch out!  There are subtle and seemingly innocuous clauses that can cost the tenant a pretty penny long after the lease has been signed.  Stay on your toes by learning these 5 Dangerous Lease Clauses.

The Usage Clause can be used by the landlord to narrow the permitted uses of a space.  Specifically, this may prevent the tenant from being able to sublease their space.  Let’s say an insurance company is renting an office for claims processing.  The landlord’s attorney stipulates that the permitted use of the space is for “insurance claims processing.”  Sure, that accurately describes the initial tenancy, but it effectively inhibits the ability of the insurance company to sublease this space to anyone other than a competitor.

We recently represented a lumber company in the acquisition of a 150,000 sq. ft. warehouse space.  The landlord’s attorney stated in the lease that the usage would be specifically for that of a lumber company.  We advised our client that this was totally unacceptable, and should we need to sublease, it could be used for any standard warehouse purpose.  We were able to trump the landlord and changed the Usage Clause to “warehouse.”  The landlord was still protected by the lease’s rules and regulations from usages of the space that would devalue the building, e.g. the use of hazardous materials, etc.  Thus, both parties were happy.

Even sophisticated companies are affected by the Usage Clause.  We once represented a multibillion-dollar global company that was theowner of a 200,000 sq. ft. office building.  Decades before we were involved, the company had allowed the building to be zoned as an “insurance office,” rather than standard office zoning.  As you might imagine, this added a significant challenge to successfully selling the building.

The bottom line?  Don’t let this happen to you.  Watch out for the often-overlooked Usage Clause.