James, a General Counsel has a weekend to prepare a plan of action to make sure a competitor who is taking over 6 floors in the building doesn’t inflict further damage to their brand. Find out what three action points he needs to follow to make sure the building looks how they want it to look.

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When a competitor moves into the building...

  • James Telford is the new General Counsel at one of Dubai’s largest banks based in their London office. The company’s Dubai HQ is over three floors in one of the city’s most prominent 13 storey high-rises and it was quite a coup for his predecessor, Eveline, a couple of years ago, to get the letting completed and ensure the bank was the first tenant to move in to the brand new building.
  • The space they’ve taken has been carefully curated to fit the company’s brand and ethos complying with the strict set of design and building specifications that has been agreed and rolled out across its portfolio (internally they call this The Deal). There is certainly a wow factor with plenty of glass and magnificent views across the city.
  • On Friday afternoon James gets back from a working lunch to find ten missed calls from Bill, the UAE Regional Director. In Dubai it is now 8pm on a non-business day so James is very concerned.  He calls Bill back immediately.  Bill explains that the Dubai real estate press is full of stories about heads of terms having been agreed in their building.  The new deal is to an arch competitor who are said to be taking 6 floors in their skyscraper, together with naming rights for the entire building and an entire floor of executive parking spaces. 
  • Meanwhile, the board have got wind of the rumour and are raising concerns. James’s CEO calls him into an emergency meeting. She wants a plan of action from her GC to make sure a bigger fish doesn’t swallow up the company’s identity and inflict further damage to their brand and bottom line. She’s had a look at the lease and can’t find anything obvious that will protect them in this situation.

Two key risks keeping James awake at night…

James knows he has to work fast.  He ideally needs to have a plan in place before the working week starts again in Dubai on Sunday. He thinks through the key risks:

Key risk #1 – Naming rights

That in the rush to be first past the post Eveline didn’t think about who the other tenants in the building might be and as a result there is no anti-competition protection now despite the fact that the Deal suggests this is essential.   

Key risk #2 – Executive car parking

A new fleet of electric super cars is about to be delivered to the board – will they have guaranteed spaces to park them?

James’s two solutions…

Solution #1 – James pulls up the extranet which contains copies of all of the key documents for all of their buildings. 

He can see that there are a few documents for this letting – an Agreement for Lease, a Lease, Car Parking Agreement but also some side letters.  He knows that competition agreements can be controversial and so dealt with outside of the main registrable documents (which is why his CEO couldn’t see them in the lease).  He hopes that one of the side letters might cover this arrangement.  James heaves a sigh of relief when he finds that is the case.  The landlord has granted them pre-emptive rights on naming the building which should have been triggered.  He will ask his lawyers to follow that up next week.

Solution #2 – There is a Car Parking Agreement. 

This provides for 100 basic spaces and 20 executive spaces in the new executive car park when that has been developed.  He can see that the landlord is under an obligation to keep them informed of those building works and to specify modifications.  He needs to ensure that each of those spaces has the super-fast charging point the new fleet requires and that the board have approved the plaques that will adorn each space.

Three action points: Ensure the building looks how you want it to look

  1. Protect your position against competitors, particularly when it comes to naming the building. Think about the space that your landlord controls and what they can offer you for your peace of mind.
  2. Car parking can be critically important in extreme climates. Senior employees may expect their own designated spaces and even air-conditioning for their and their clients’ cars.
  3. Where you have a large portfolio of properties and consistency of brand is important to you, consider working up some guidelines that can be the starting point on every deal.
The BCLP CRES ensures that you get the right commercial and legal advice, no matter where you and your property are in the world. If James’s HQ were based in Germany, Russia or the US there may be additional concerns he needs to consider. Lawyers from across the BCLP network provide their thoughts on some local issues.

The view from the US…

Tory Goldson, a Partner in BCLP’s St.Louis office, says…

In the U.S., a retailer often seeks a lease clause that restricts the landlord from leasing space to the tenant’s competitors in the same shopping center (or in a specified portion of that center).  In the same vein, the retailer may want to have the exclusive right to sell certain goods or services at the shopping center.  As the case study illustrates, the protection of a company’s brand and business can be important in leasing office space too.  In the office setting in the U.S., a significant tenant may focus on securing, where possible (1) naming rights to the building (or at least preventing naming rights from being given to its competitors), (2) an exclusive use clause that prohibits the landlord from leasing to the tenant’s competitors or allowing competitive business operations within the building (or at least within the office space accessible by the same elevator bank as the tenant’s offices in a high rise office building with multiple elevator banks), and (3) signage rights such as crown signage and protections concerning the placement and availability of monument, lobby and other signage. 

These types of lease provisions are heavily negotiated as to scope and remedies in the event the rights are violated by the landlord or by a another “rogue” tenant at the building.  In addition, such rights can be subject to conditions that might cause those rights to be lost, such as in the event the identity of the tenant or the size of the premises changes.  Finally, it is worth noting that exclusive use clauses should be drafted so that they are as clear as possible because, as a general rule in the U.S., most courts will interpret ambiguities in such clauses in favor of allowing real estate to be free from restrictions on use.

The view from Germany…

Albrecht von Breitenbuch, a Partner in BCLP’s Berlin office, explains…

Corporate brand and real estate have to go together so we often see clients to spend much thought on the right location and the appropriate building as well as options for fit out and individual design before negotiating a lease. These clients want to express and strengthen their brand to raise profile and visibility. As under German statutory law any lease which is in force and effect is transferred to any new owner of the building any supplementary tenant rights will even remain in place in case of a sale of the building if they are included in the lease documents. Therefore we advise clients to consider and raise any such requirements early in the discussion with the potential landlord.

One of these supplementary tenant rights could be the naming right for the building which can be secured under the lease agreement with the landlord as an active right (to implement tenant’s own name) or as a protective right (to stop landlord from granting naming rights with respect to particular names or beneficiaries). Beyond the building itself, tenant s should also consider further naming rights with respect to street or plaza access, in particular where these are privately owned. This also includes further rights to outdoor and indoor advertising and signage.

In line with location tenant consider carefully the accessibility of their premises by means of transport. Besides public transport this also includes a certain portion of individual transportation by car, motorbike, bike and scooter. With increasing use of electronic mobility devices the charging infrastructure becomes key. Therefore it is important for clients to define their needs for any additional infrastructure outside the premises. As neither of these supplementary rights come with the lease by force of German statutory law they will need to be negotiated and included on a case by case basis.

The view from Russia…

Yuri Chernobrivtsev, a Partner in BCLP’s Moscow office, says…

Provisions on non-competition, car parking or naming the building need to be specifically agreed in the lease as Russian law does not cover these issues under the general regulation of property leases. What is very important is that the leases should not only contain prohibitions or statements on certain obligations with which the landlord must comply but should also provide for incentives for preventing the landlord from breaching the relevant prohibitions and obligations. As an example, it is quite common to use a rent reduction mechanism if a non-competition or car parking clause is breached.

For more information, please contact us at cres@bclplaw.com

 


This information is not to be considered legal advice. The primary purpose of these materials is informational only. Under the ethics and professional rules of certain jurisdictions, these materials may be construed as advertising or solicitation. For the purposes of advertising, BCLP designates St. Louis, Missouri, as its principal office and Kathryn DeBord as the responsible attorney.