A Commercial Lease Issue: Exclusivity
Quick recap. Sam Johnson (purveyor of big cats and craft beer) has found the perfect place for his unique venture, “Growlers – Felines & Ale.” There you can find jaguars dripping blood while sipping a delightful malted beverage (that’s you drinking the brew, not the jag). What a combo!
Lawyers commonly lament that their clients almost don’t want to consult them because the clients fear the legal beagles will find holes in their brilliant dreams. But, then the clients turn on their counsel if the attorney has failed to point out pending hazards.
So it is with Sam. He’s torn. He knows it makes good business sense to have his general counsel review what’s going on. He just hates listening. But, he’s given me a chance to explain why he needs me to review the lease. We’ve already discussed use and renewal as two issues beyond rent and location.
Why Should My Business Be Exclusive?
Item No. 3: Exclusivity. Consider this – you own your own business, be it a grocery store, a Mexican restaurant, an office supply purveyor, a nursery (babies or flowers, the point is the same regardless), a women’s clothing shop, whatever. You’re getting ready to sign a five-year lease, with total rent over that time combining to over $500,000. You probably don’t want a competitor opening up next to you with lower prices or better supplies.
You want to be EXCLUSIVE.
What’s that got to do with Sam? After all, how many places have lions brewing beer? With those paws, they can shred those hops like nobody’s business.
But, breweries are becoming quite popular. Ten years ago, you likely had to drive a distance to get a beer made on the premises. Now they are a growth industry, with breweries springing up everywhere. Based on a 2019 report from foodandwine.com, “California now has 1,000 breweries, more than any other state. The state has more breweries than the entire U.S. did back in 1995.”
For Sam, while the big cats are a draw, the real money comes from beer sales. So, if another brewery opened next to him, he’s going to feel it in the bottom line.
But, what is a “brewery”? Is it only a place that makes beer from scratch? Or, is it a restaurant that features its own beer but is made someplace else, like maybe a B.J.’s? Or, does it include a place that only serves craft beer made by others?
When Should Business Exclusivity Be Addressed?
If Sam doesn’t address this BEFORE he signs the lease, then he will have no protection from some or all of these examples coming in next door, stealing his business. While some customers will come to Growler to see the fierce predators, they may go to the adjoining brewery that features its brew poured by scantily clad ladies with live bands.
“So, Sam,” I tell him, “You may draw everyone to your location but if you don’t negotiate an exclusive now, then there’s no guarantee another place doesn’t open up right next to you and steal your customers. And this is only dealing with the beer aspect of your business. Do you want a venue featuring live animal acts starting after you have spent hundreds of thousands of dollars getting your place ready? That’s why you’ve got to let me negotiate some exclusivity for you in this lease.”
Next, Part IV: Assignments. ©
Opening a business in Santa Clarita? Have questions about negotiating exclusivity? Give our experienced business lawyers at Kanowsky & Associates a call at (661) 228-8580 or contact us online to request a consultation. We speak Spanish!