The Use Clause: How to Draft It Well and Abstract It Comprehensively

The use clause is one of the most consequential provisions in any commercial lease. Yet it is frequently under-negotiated, loosely drafted, and poorly abstracted. Teams spend hours on rent escalation mechanics and renewal options while a few lines defining what a tenant can actually do with the space receive only passing attention. That is a mistake with real consequences.

A poorly drafted use clause can unravel a deal, expose a landlord to liability from neighboring tenants, strip a tenant of business flexibility, or trigger a cascade of exclusivity and co-tenancy disputes across an entire property. This guide walks through every major component of the use clause — how to draft each one well, and what to capture when abstracting it.

1. Permitted Use

What it does: Defines what the tenant is allowed to do in the premises. Everything flows from this definition.

The drafting challenge is balance. Too narrow — "retail sale of women's athletic footwear only" — and the tenant cannot adapt, pivot, sublet, or assign without a lease amendment. Too broad — "any lawful retail purpose" — and the landlord risks conflicts with exclusivity rights granted to other tenants, zoning complications, or uses it never contemplated.

Drafting best practice:

• Be specific enough to reflect the parties' intent

• Be broad enough to give the tenant genuine operational flexibility

• Include all ancillary activities the tenant reasonably anticipates: a restaurant should cover catering, delivery, takeout, branded merchandise, and alcohol service; an office tenant should cover client meetings, IT infrastructure, employee amenities, and storage

When abstracting, capture:

• The exact permitted use language, verbatim or in close paraphrase

• Whether the use is tied to a specific trade name or concept (critical for assignment and subletting implications)

• A flag indicating whether the clause is narrow or broad, with a risk note if it is unusually restrictive

2. Prohibited Use for the Tenant

Most leases include an explicit list of things the tenant cannot do. These typically cover uses that create nuisance, generate excessive noise or odor, involve hazardous materials, or conflict with the character of the property. In retail, landlords frequently prohibit discount retail, pawn shops, check cashing, and similar uses that are perceived to degrade the tenant mix.

Drafting pitfalls to avoid:

• A blanket prohibition on "food service" in an office lease might inadvertently restrict the tenant from running an employee cafeteria

• Overly vague restrictions like "any use deemed objectionable by Landlord" give the landlord unchecked discretion and will be resisted by any sophisticated tenant

• Tenant counsel must review each prohibition against the permitted use to ensure there is no internal contradiction

When abstracting, capture:

• A complete list of all prohibited uses — not a summary

• Any prohibition that is unusual or particularly restrictive

• Any tension between a prohibited use and the permitted use as drafted — this is a common source of lease disputes and must be flagged explicitly

3. Exclusive Use Rights

An exclusive use provision grants the tenant the right to be the only occupant in the property — or within a defined area — operating a specific type of business or selling a defined category of goods and services. These are among the most negotiated and most litigated provisions in retail leasing.

Drafting best practice:

• Define the protected category precisely but with enough breadth to actually protect the tenant — "specialty coffee beverages" may provide less protection than expected if a competitor opens as a bakery with coffee service

• Define the geographic scope clearly: entire shopping center, specific building, or defined parcels

• Specify the remedy for breach: rent abatement, termination right, injunctive relief, or all three

• Tenant counsel should push for self-help remedies in addition to legal action — litigation is slow and the damage from an exclusivity violation is ongoing

When abstracting, capture:

• The protected use category (verbatim)

• Geographic scope and specific parcels or buildings covered

• Duration of the exclusive

• Remedy for breach

• All carve-outs and exceptions, including any existing tenants whose use already overlaps with the exclusive

4. Prohibited Tenants

Distinct from exclusivity rights, a prohibited tenant provision restricts the landlord from leasing to specifically identified operators or brands — not just categories of use. National anchors and strong regional tenants routinely insist on these.

Examples: A big-box electronics retailer prohibiting a named direct competitor from opening in the same center. A gym prohibiting a competing fitness brand by name.

Drafting best practice:

• Identify prohibited tenants by brand name and address successor brands and affiliated concepts

• Clarify whether the restriction applies to temporary tenants, pop-up operators, kiosk licensees, and licensed departments within other stores — all common workarounds

• Define the geographic scope and duration

When abstracting, capture:

• Every named entity and every prohibited category

• Geographic scope of the restriction

• Whether the restriction applies to temporary, kiosk, or licensed operations

• This list should function as an active checklist for leasing teams before any new lease or license is executed in the property

5. Prohibited Use Restrictions on the Landlord

These provisions impose use restrictions directly on the landlord itself — not on who the landlord can lease to, but on what uses the landlord or its affiliates can conduct on any portion of the property. Particularly important in mixed-use developments where the landlord controls multiple adjacent parcels.

What these provisions might cover:

• Prohibiting the landlord from operating a competing use in an adjacent parcel it owns

• Preventing conversion of common areas into competing uses

• Restricting the landlord from granting easements that would allow third parties to operate competing uses on nearby land

Drafting best practice:

• Define the restricted parties clearly: landlord, affiliates, successors, and assigns

• Define the restricted geographic area with precision — measured distance or specific parcel references

• Consider whether the restriction should be recorded against title to bind future owners, not just the named landlord entity

When abstracting, capture:

• Whether the restriction is contractual only or recorded in the chain of title

• The restricted party, restricted area, and restricted use category

• Duration of the restriction

• A risk flag if the restriction only binds the named landlord and not successors

6. Go Dark Provisions

A go dark provision addresses what happens when a tenant stops operating at the premises without surrendering the lease. Tenants go dark due to financial distress, strategic rationalization, or operational decisions. A dark tenant — particularly in retail — pays rent but contributes nothing to foot traffic, co-tenancy thresholds, or the vitality of the center.

From the landlord's drafting perspective:

• Prohibit going dark outright for retail tenants, or impose strict conditions

• Require the tenant to maintain the storefront in a presentable condition during any permitted dark period

• Prohibit using the dark space as storage or as display for competing brands

• Include a recapture right if the tenant remains dark beyond a defined period

From the tenant's drafting perspective:

• The right to go dark provides essential operational flexibility and should not automatically trigger a default

• A dark period should not allow the landlord to terminate the lease or cause the tenant to forfeit exclusive use rights or co-tenancy protections

• Negotiate a reasonable permitted dark period — typically 6 to 12 months — before any landlord remedy is triggered

When abstracting, capture:

• Whether going dark is permitted or prohibited

• Permitted dark period duration and any conditions attached

• Landlord's remedy: rent abatement rights, recapture right, or termination

• Whether going dark affects co-tenancy or exclusivity rights

7. Radius Restrictions

Radius restrictions limit one or both parties from operating a competing use within a defined geographic area around the leased premises. They are common in retail leasing but carry particular weight in ground leases, where tenants are often developers operating long-term projects and landlords frequently hold other land in the same market.

In ground leases specifically:

• The ground lessee may be prohibited from developing a competing project within a defined radius, protecting the leased development's market

• The ground lessor may be restricted from leasing or selling adjacent land to competing developers or operators

• Given ground lease terms of 20, 50, or 99 years, these restrictions must anticipate significant market change — the definition of "competing use" needs to be durable

Drafting best practice:

• Define the radius with precision: a measured distance in feet or miles from a specific defined point, not a vague concept of proximity

• Address both parties' obligations explicitly — radius restrictions in ground leases bind landlord and tenant alike

• Include carve-outs for existing uses and pre-approved projects

• Consider what happens on assignment: does the radius restriction follow the assignee?

When abstracting, capture:

• The restricted party (landlord, tenant, or both)

• The radius distance and the specific point from which it is measured

• The restricted use or development category

• Duration of the restriction

• All carve-outs and pre-approved exceptions

8. Rogue Tenant Violations

One of the most practical day-to-day challenges in managing a multi-tenant property is the rogue tenant — an occupant who, whether deliberately or through operational drift, begins operating outside its permitted use. The problem is more common than most landlords expect, and it creates liability not just between landlord and the offending tenant, but between the landlord and every other tenant whose exclusivity rights are being infringed.

The critical drafting point most landlords miss: It is not enough to restrict each tenant's use in their own lease. The landlord must also take on an affirmative obligation to enforce use restrictions against violating tenants when a protected tenant demands it.

From the landlord's drafting perspective:

• Include clear default provisions for operating outside the permitted use

• Ensure every lease in the property contains enforceable use restrictions consistent with all exclusivity and prohibited tenant rights already granted

• Represent to incoming tenants that no existing tenant's current use conflicts with the new tenant's exclusive rights

From the tenant's (exclusivity holder's) drafting perspective:

• Push for an express landlord covenant to police use violations across the property

• Define a cure period: if the landlord fails to commence enforcement within a defined number of days of written notice, the tenant's remedies should activate — typically rent abatement, and termination for persistent or uncured violations

When abstracting, capture:

• Whether the landlord has an affirmative enforcement obligation

• The trigger for that obligation (typically written notice from the protected tenant)

• The timeframe within which the landlord must act

• The tenant's remedy if the landlord fails to act

• This is operational information — asset managers and leasing teams must be able to find it quickly

9. Ancillary Sales — Defined Percentages and Thresholds

Most tenants sell or provide goods and services beyond their core permitted use. An ancillary sales provision sets limits on how much of the tenant's business can be devoted to those secondary activities. The purpose is to prevent permitted use creep — where a tenant technically stays within its own permitted use while undermining another tenant's exclusivity through the volume of goods it sells in adjacent categories.

The drafting solution: A defined threshold expressed as both a revenue percentage and a floor area percentage:

• Revenue threshold — ancillary category sales must not exceed a defined percentage (commonly 10–20%) of total gross sales in any twelve-month period

• Floor area threshold — space devoted to ancillary merchandise must not exceed a defined percentage (commonly 10–15%) of total usable area

Both thresholds matter. A tenant could keep ancillary sales volumes low while devoting a visually dominant portion of the store to a competing category — complying with a revenue cap while violating its spirit.

Drafting details to address:

• Align the gross sales definition with the percentage rent provision elsewhere in the lease — inconsistency creates disputes

• Carve out de minimis items: point-of-sale impulse items, branded merchandise, gift cards

• Include a periodic reporting obligation by merchandise category — without it, the threshold is unenforceable

• Note that even sales below the ancillary threshold may still breach another tenant's exclusivity if the goods fall within a protected category — the two provisions must be read together

When abstracting, capture:

• The threshold percentage for both revenue and floor area

• The measurement period (monthly, quarterly, annual)

• The categories of goods subject to the cap

• Any express carve-outs

• The reporting obligation and its frequency

• The consequence of exceeding the threshold

• A risk flag where no ancillary threshold exists and the permitted use is broad enough to create exclusivity exposure

10. Franchisee Rights

Where a tenant operates as a franchisee, the use clause must account for the intersection of the lease and the franchise agreement. Franchisees have obligations to their franchisors around brand standards, hours, product offerings, signage, and approval of assignments — all of which interact directly with what the lease permits, prohibits, or requires.

Key drafting issues:

• The lease should acknowledge the existence of the franchise agreement and confirm that tenant operations must comply with it

• Address what happens when the franchise agreement terminates: does the lease survive? Can the tenant continue under a different brand? Does the landlord have a recapture right?

• Landlords in quality retail centers may want consent rights over material changes to the franchise concept that would affect the character of the tenancy

• Franchisors will often resist any lease provision that gives the landlord excessive control over brand decisions or operations

Franchisor-specific protections to consider:

• Franchisor's right to step in and cure a tenant default to protect its brand and avoid losing the location

• Franchisor consent rights over assignment or subletting

• Whether the franchisor is a guarantor under the lease and the scope of that guarantee

When abstracting, capture:

• Whether the tenant operates as a franchisee and the franchisor's identity

• Whether the franchise agreement is referenced or attached

• What happens upon termination of the franchise

• Whether the franchisor has any direct rights or obligations under the lease

• Any landlord consent rights over brand or concept changes

Bringing It All Together

The use clause is not a single provision — it is an ecosystem of interrelated rights and restrictions that together define what a property can and cannot be. No single component operates in isolation. The permitted use interacts with the ancillary sales threshold. The exclusivity interacts with both the rogue tenant enforcement obligation and the landlord's prohibited use restrictions. The franchisee rights interact with assignment and subletting. The radius restriction in a ground lease binds both parties across a term that may span a century.

Drafting it well means understanding that ecosystem before putting pen to paper. Abstracting it well means capturing every element — not just the headline use — in a structured, actionable form that leasing teams, asset managers, counsel, and lenders can actually use.