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How non-compete clauses can benefit owners and tenants

On Behalf of | Mar 26, 2020 | Litigation

When looking for commercial property to lease in Southern California, business owners want to know who their neighbors are. An entrepreneur planning to open a pizza-by-the-slice shop could be drawn to a plaza that has a play gym for kids or is located next to a high school. Pizza and the gym could draw plenty of parents and kids or students seeking a quick snack.

Is there a sit-down pizza restaurant or a fast-food burger joint just yards from the available space? The aspiring businessperson likely will say arrivederci to that spot. But what guarantee does the pizza shop owner have that a competitor won’t move in to the center eventually chosen and thwart business months later? A non-compete clause can provide that.

Having a non-compete clause in a lease means the owner of the property can’t lease another area in the development to a business in direct competition with theirs or to someone with the same business genre – that’s pizza or quick-serve meals, in this example.

A non-compete clause can help tenants maximize their sales because a similar business won’t be siphoning off customers. However, the property owner also can benefit, especially if a percentage of sales is part of the commercial lease. A variety of popular businesses can bring in a number of customers who will patronize a variety of shops, further increasing sales — and the landlord’s share.

Both tenants and landlords will have different goals as they write the lease, and each party will want to include remedies should either side breach the contract. A well-executed agreement should be a winning deal for both sides. To achieve that, both parties should work with legal counsel experienced in laws surrounding commercial properties as they draft the agreement.