Tenant exclusives in a shopping center

[Michelle R.]

We have a 52,000 sq ft shopping center with retail and medical on the first floor, and second floor has professional and medical tenants. We have a chiropractor tenant upstairs who has been in the center over 20 years. They have an exclusive on chiropractor services and spinal adjustments. We have a prospect looking to sign a 5 year lease for space on the first floor for physical therapy. We would word the lease such that the physical therapist must observe all the exclusives of the chiropractor, and the new physical therapy user would not preclude the chiropractor from performing services involving physical therapy.

In your experience, are the two uses too similar to introduce the physical therapist? If there were to be any violation of the chiropractor exclusive on the part of the physical therapist, would the liability be on the new tenant or on us as landlord?

Would you feel it necessary to have a discussion with the chiropractor prior to signing the physical therapist? Keep in mind, these tenants are small in size in the grand scheme of things, with each having a 2% pro rata share of square footage.

Is there anything I am overlooking here?

[Stanley Bronstein]

@Michelle R. A lot depends on how your lease is worded. Typically, your lease with the chiropractor is an agreement between you (the landlord) and the tenant (the chiropractor). If the exclusive is violated, this would probably be a breach of your lease contract with the chiropractor.

The physical therapist is NOT a party to this agreement, so they did not agree to the exclusive. HOWEVER, many leases (if properly drafted), will contain appropriate restrictions on violating the exclusives of other tenants and I've even seen leases where the exclusives of other tenants were incorporated into the lease (as an exhibit) and the new tenant agreed to not violate those exclusives.

If you want to be 100% safe, you need to talk with the chiropractor tenant and make them feel comfortable with the situation and convince them allowing the physical therapist is in their best interests. You could then try to get them to waive their exclusive for that one tenant (in writing). You might need to offer them some type of inducement (such a free month's rent).

Good luck.