I need some help before getting into a potential mess!

[Mike Lynch]

Hi Everyone,

I have a 2 unit, 2000 sq ft. commercial office building, which is empty now. We purchased it this past summer. Each unit is 1000 sq ft. separated by a long wall.  There are two glass front entry doors about 20 feet apart for each potential tenant and two side doors. We just rehabbed it with new flooring, paint, plumbing, etc., and it looks great. ...... A very well known financial company "franchise" sent out a site inspector, then they wrote up a 5 year lease and sent it to me to lease out Unit 1......... Sounds pretty good!.......... Then, here is what they demand below, on the lease........... If they get in there, it will really restrict what I can do with Unit 2. ....... Now, check out item "T" near the bottom, which I have also posted here! ( t) Any other non-professional use similar to those listed above.)

The word is "Similar"......... Well, every business is "Similar" in a lot of ways. They have customers, cash registers, traffic, goods, items, etc. ... No matter what I put in there can be considered "similar"....... Because of this, they can break the lease or take actions against me at any time, right? They want total control over the entire building, but only want to rent half of it..... It might be very difficult to rent out Unit 2 with all of these restrictions.

This is my very first rental ever, and my very first potential tenant ever.......What would you guys do? 

10. Restricted Use

A. The Lessor shall not lease or sell any units within the Building, Shopping Center or Property to the following user(s):

a) Adult video/Adult entertainment stores;

b) Abortion offices/facilities;

c) Alcohol/Drug rehabilitation offices/facilities;

d) Off-track betting establishments;

e) Offices or entities that sell, barter, trade, buy, or dispenses marijuana, for medical use or otherwise; or

f) Probation/parole offices.

B. The Lessor shall not lease or sell the units within fifty (50) feet of Lessee's demising wall to the following users(s):

a) Bars, taverns, billiard halls;

b) Pawn shops;

c) Dance studios or Karate studios;

d) Beer or wine-making stores;

e) Psychological counseling offices/facilities;

f) Unemployment or Social Security offices;

g) Liquor stores;

h) Tattoo shops/body art/piercing tenants;

i) Beauty/Hair Salons, Cosmetology Services, or Nail Salons;

j) Gun and Weapon shops;

k) Smoke/Tobacco or Vapor/E-Cigarette shops;

l) Child Care/Children's gymnasium;

m) Dry Cleaning Plant facility;

n) Veterinarian/Dog Grooming/Animal Boarding;

o) Gym/Workout facility;

p) Same day cash/loan shops;

q) Massage parlors (except for national chains such as Massage Envy and the like);

r) Police substations;

s) Military recruiting offices; or

t) Any other non-professional use similar to those listed above.

C. Each party acknowledges that Lessee may suffer irreparable damage in the event of a breach or threatened breach of any paragraph of this Article. Accordingly, in such event, Lessee shall be entitled to seek preliminary and final injunctive relief, as well as any and all other applicable remedies at law or equity, including the recovery of damages for a breach of the paragraphs of this Article. Additionally, Lessee shall have the right, but not the obligation, to cancel/terminate the Lease, without further liability to Lessor, if Lessor breaches the paragraphs of this Article, and further Lessee shall be entitled to damages from Lessor, including but not limited to the cost of relocating, real estate commissions, tenant improvement reimbursement at the current Premises, tenant improvement at the new premises, loss of business, etc.

Here is a photo of our office building below"

So, what do you all think?

Thanks,

Mike

[Derek Carroll]

This is common. What financial services company trying to build a trusted reputation wants to be next to a business that takes away from that.

Are you going to a dentist that has an office between a pawn shop and an adult video store or are you going to the dentist in a nice office park?

You’ll also see non competing use clauses as well as Co-tenancy clauses (if the business next door leaves we have the right to as well)

I didn’t look at the exact language mostly because I don’t know your particular location and market to best understand what is best for you in this situation. I just wanted to point out that these clauses are common and businesses want to be near other similar types of businesses especially when they are trying to protect a brand image.

Best bet is to have a local commercial broker discuss with you the most likely use cases for your building. Who typical tenants are, ect.

Also you really need a commercial real estate attorney on your team to do leases like this. In CRE the value of a property is almost entirely driven by the leases that are in place so it’s not a place where you want to skimp out and try to save a few bucks by not using an attorney.