San Diego Commercial Leases: Nonconforming Use Clauses

When your business enters into a commercial lease, there will likely be a clause related to “nonconforming use” of the property. These clauses often are limited to use of the leased premises that conform or fail to conform to governmental zoning, permit, and use regulations. Sometimes such provisions also relate to a lease-specific use limitation. Here is a quick discussion of legal issues. The help and advice of an experienced and trusted San Diego corporate attorney is important when you are negotiating a commercial lease.

San Diego Commercial Leases: Considering Potential Problems With Respect to Nonconforming Use Clauses

In general, most commercial properties must conform to the various and respective to local, state, and federal laws with respect to zoning, permits, and use restrictions. As an example, many villages, towns, and cities limit the placement of bars, nightclubs, and other establishments that serve liquor. This is an example of a use limitation.

Many commercial leases will contain a clause that states something like:

“NONCONFORMING USE: TENANT will use the PREMISES in a manner that, at all times, conforms and complies with City, State and Federal regulations. Such regulations shall include, without limitation, zoning and use restrictions, permit requirements and proximity rules.”

Note that this clause is often combined with provisions that require compliance with health, fire, building, and other safety-related codes.

When negotiating a commercial lease, it is important to seek flexibility. For example, what happens if the local regulations change at the mid-point of your five-year lease? Among the relevant legal issues are these:

• Definition of “nonconforming use” — is the definition based on the law at signing or based on the new regulations?
• Definition of “lease violation” — can nonconforming use be a lease violation simply because the local ordinances changed?
• Materiality requirement — tenant must comply with non-material changes to local ordinances (like landscaping) but can avoid the lease for material changes that prevent tenant from operating its business?
• Can there be a “lease violation” if the Lessor is not at risk for monetary fine or punishment under the new regulations?
• If the Lessor terminates the lease because of the new regulations, is the tenant still liable for lease payments?
• Notice requirements
• Cure efforts — does the tenant have time — and how much time — to conform to the new regulations or seek a variance from the relevant local government agency?
• Litigation challenges — is any Lessor-claimed “lease violation” suspended if the tenant challenges the new local ordinance in court or other legal proceedings?

The unique circumstances of your business and of your proposed commercial lease will determine if a proposed nonconforming use clause needs a full vetting and rigorous negotiation. If you are opening a small retail shop in an area that has long been known as a retail area, nonconforming use provisions may not generate foreseeable problems. With highly regulated businesses such as liquor establishments, however, nonconforming use clauses probably deserve close and exacting attention.

Contact San Diego Corporate Law

For more information, contact experienced business attorney Michael Leonard, Esq. of San Diego Corporate Law. Commercial leases can be complex and complicated, and you need good legal counsel as you weigh your renewal options. Contact Mr. Leonard via email or by calling (858) 483-9200.

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