Are Your Commercial Lease “Use” Clauses Putting Your Maryland Property Portfolio at Risk?

A tenant signing a lease for “general retail use” in your Silver Spring strip mall seems straightforward enough. You envision a quiet boutique or a small stationery shop. Six months later, you discover they have opened a discount vape shop with neon signage that violates the aesthetic guidelines of the center, or perhaps a high-traffic urgent care facility that dominates the parking lot, infuriating your restaurant tenants who rely on those spaces for the lunch rush.

For commercial landlords in Maryland, the “Use” clause is often treated as a boilerplate provision, a few lines of text filled in at the last minute. Yet, this single paragraph serves as the operational control center for your entire property. It dictates the mix of businesses in your portfolio, protects your asset from excessive wear, and ensures compliance with local zoning ordinances from Bethesda to Baltimore City. When drafted poorly, it becomes a distinct liability, opening the door to tenant conflicts, zoning violations, and costly litigation that can tie up a property for years.

The Strategic Importance of the “Permitted Use” Provision

The core function of the Use clause is to define exactly what a tenant can and cannot do within the leased premises. In Maryland, courts generally favor the free use of land. This means that if a lease is silent or ambiguous regarding a specific use, the law often defaults to allowing the tenant to use the premises for any lawful purpose.

This presumption places the burden of restriction squarely on the landlord. A clause stating the premises shall be used for “restaurant purposes” is dangerously broad. Does that include a nightclub? A fast-food drive-thru? A delivery-only ghost kitchen? Without specific prohibitions or narrow definitions, a landlord in a mixed-use development in Columbia might find themselves hosting a venue that operates until 3:00 AM, generating noise complaints from residential tenants above.

Distinguishing Between Primary and Incidental Uses

Disputes often arise not over the main business, but over “incidental” uses. A coffee shop that decides to start selling wine in the evenings, or a fitness studio that begins selling nutritional supplements and apparel, can inadvertently trigger conflicts with other tenants who have exclusive rights to sell those specific items.

To protect the ecosystem of a shopping center or office park, the Use clause must distinguish between the primary permitted use and ancillary activities. It should set clear boundaries on how much floor space can be dedicated to retail in a service business or limit the hours during which certain activities can occur.

Can I Restrict a Tenant from Changing Their Business Model?

A landlord can restrict a tenant from changing their business model, but only if the lease’s Use clause is drafted with sufficient specificity to prohibit the new activity. If the lease permits a broad category like “retail use,” a transition from a clothing store to a discount variety store is likely permissible unless explicitly excluded.

When a tenant struggles, they often pivot. A failing high-end salon in Annapolis might try to rebrand as a budget walk-in barber shop or add spa services to boost revenue. While adaptability is good for the tenant, it can be disastrous for the landlord’s long-term property strategy.

If your lease merely states the property is for “personal services,” you may have little legal ground to stop a pivot that downgrades the perceived value of your building or attracts a demographic inconsistent with your other tenants. A robust lease anticipates this by:

Defining the Trade Name: Tying the use to a specific trade name (e.g., “operating solely as [Business Name]”) prevents the tenant from radically rebranding without landlord consent.
Limiting Product Lines: Specifying that the tenant may only sell high-end women’s apparel and accessories prevents a slide into discount liquidation or general merchandise.
Requiring Landlord Approval: Including language that any change in the “character” or “quality” of the operation requires prior written consent from the landlord.

Navigating Exclusive Use Covenants in Maryland

In retail environments, particularly in shopping centers along busy corridors like Rockville Pike or York Road, tenants often demand “exclusive use” clauses. A pizza parlor will want a guarantee that no other tenant in the center can sell pizza. A dentist will want to be the only oral healthcare provider.

While these covenants are standard, they are landmines for the unwary landlord. The danger lies in the details. If you grant a tenant the exclusive right to sell “coffee,” does that prohibit a Panera Bread location from selling coffee with their bagels? Does it stop a Target anchor store from having a Starbucks inside?

The “Restraint of Trade” Challenge

Maryland courts look closely at exclusive use provisions because they can be seen as unreasonable restraints of trade. To be enforceable, these restrictions must be reasonable in scope and duration. A restriction that effectively bars any food service in a 500,000-square-foot shopping center because one tenant sells sandwiches would likely be challenged.

Furthermore, drafting errors here lead to “rogue tenant” scenarios. If Tenant A has an exclusive right to sell subs, and you accidentally sign a lease with Tenant B that allows them to sell “sandwiches,” you have placed yourself in breach of Tenant A’s lease. Tenant A may then have the right to withhold rent, terminate their lease, or sue for lost profits—all because of a drafting oversight in Tenant B’s agreement.

Carve-Outs are Critical: You must include exceptions for existing tenants and incidental sales (e.g., allowing a sit-down restaurant to sell dessert coffee despite a coffee shop’s exclusive).
Remedy Limitations: The lease should limit the landlord’s liability if another tenant violates the exclusive use rules, provided the landlord takes steps to enforce them.

What Happens if a Tenant’s Use Violates Local Maryland Zoning Laws?

If a tenant’s use violates local zoning laws, the landlord may still be liable for fines and remediation costs if the lease does not clearly shift the burden of compliance to the tenant. In Maryland, a “Compliance with Laws” provision is essential to ensure the tenant bears the financial and legal responsibility for obtaining necessary permits and adhering to municipal codes.

Zoning regulations in Maryland are hyper-local and subject to change. What is permitted in the industrial zones of Baltimore County may be strictly prohibited in the commercial districts of Gaithersburg. A common scenario involves a tenant leasing warehouse space for “light manufacturing,” only to engage in chemical processing that requires special use permits or violates environmental overlay zones.

The Landlord’s Exposure

Municipalities often look to the property owner for enforcement. If your tenant is operating an unlicensed auto repair shop in a zone designated for retail, the citation from the county code enforcement office will likely be addressed to you.

The Use clause must work in tandem with the “Compliance with Laws” section. It is not enough to say the tenant must obey the law. The lease should explicitly state:

Tenant Responsibility: The tenant is solely responsible for verifying that their specific intended use is permitted under current zoning.
Permit Contingencies: The landlord makes no representation that the premises are suitable for the tenant’s specific business.
Indemnification: The tenant must indemnify the landlord against any fines, legal fees, or penalties resulting from their non-compliant use.

This is particularly relevant for properties in areas undergoing revitalization, such as parts of Prince George’s County or the redeveloping neighborhoods near the Port Covington area in Baltimore, where zoning designations may be in flux.

The Cannabis Conundrum: A Maryland Specific Risk

With the legalization of recreational cannabis in Maryland, commercial landlords face a unique intersection of state rights and federal prohibition. A tenant may wish to lease space for a dispensary or growing operation, which is fully legal under Maryland state law but remains a federal crime.

This creates a conflict for landlords with federally backed loans. Most commercial mortgages (CMBS loans, bank loans insured by the FDIC) have covenants requiring the property to comply with all laws, including federal law. Leasing to a cannabis tenant, even a licensed and compliant one under Maryland regulations, could technically trigger a default on your mortgage.

“Any Lawful Use” Pitfalls

If your lease simply allows “any lawful use,” a cannabis tenant could argue that their business is lawful under Maryland law. To maintain control, landlords who wish to avoid this risk must explicitly exclude uses that violate federal law, regardless of state legality. Conversely, landlords who want to tap into this lucrative market must carefully structure the Use clause to address:

Odor Mitigation: Mandating specific ventilation systems to prevent nuisance complaints from neighbors.
Security Protocols: Requiring enhanced security measures due to the cash-heavy nature of the business.
Cash Rent Payments: Addressing how rent will be paid if the tenant loses access to traditional banking.

How Precise Must a Use Clause Be to Prevent Subleasing Disputes?

A use clause must be extremely precise to prevent subleasing disputes, as a broad use provision effectively allows a tenant to sublease to a wide range of businesses that may not fit the property’s mix. To retain control, the lease should stipulate that any assignee or subtenant is bound by the exact same specific use restrictions as the original tenant, not just a general category.

Assignment and subletting are the “back door” through which a landlord often loses control of their tenant mix. A prime retail space in downtown Frederick, leased to a high-end bookstore, could be subleased to a discount liquidation center if the Use clause allows for “general retail.”

While Maryland law generally allows landlords to be reasonable in approving subtenants, the definitions in the Use clause are the yardstick for reasonableness. If the lease says “retail,” and the proposed subtenant is a retail store, rejecting them might be deemed unreasonable.

Protecting the Tenant Mix

To prevent a revolving door of mismatched businesses, the Use clause should be “personal” to the original tenant to some degree, or at least highly specific.

Strict Use Continuity: The sublease clause should state that the permitted use for any subtenant shall be the same as the actual use of the tenant at the time of the transfer, not just the broad permitted use in the original lease.
Prohibited Uses List: Many landlords attach a “Prohibited Uses” exhibit to the lease. This “negative use” list is often easier to enforce than a “positive use” description. It specifically bans problematic uses such as adult entertainment, gambling establishments, pawn shops, or heavy industrial operations.
Anchor Tenant Restrictions: If you have major anchors like a Whole Foods or a Wegmans, their leases often restrict what other tenants you can have. Your standard lease for smaller tenants must incorporate these restrictions to prevent you from violating your anchor leases.

Continuous Operation Clauses: Avoiding the “Dark” Store

A Use clause typically describes what a tenant can do, but a “Continuous Operation” clause dictates what they must do. In retail, a dark store is a blight. If a tenant continues to pay rent but closes their doors, perhaps to move to a competing center down the street while blocking a competitor from taking their old space, it kills the foot traffic for your other tenants.

For properties in competitive retail corridors like Towson or Annapolis, landlords should consider requiring the tenant to:

Open for Business: Obligate the tenant to open fully stocked and staffed by a certain date.
Maintain Hours: Operate during standard shopping center hours (e.g., 10 AM to 9 PM).
Keep Lit: Maintain window displays and lighting even if they cease operations, though full operation is preferred.

This prevents a tenant from using your property as a warehouse or a strategic chess piece to hurt a competitor, ensuring your asset remains vibrant and valuable.

Drafting for the Future: Flexibility vs. Control

The challenge in drafting commercial leases in the current Maryland market is balancing the need for control with the need for flexibility. Retail and office uses are blurring. An office tenant in Bethesda might want a “resimercial” layout with a kitchen and lounge area that borders on a café use. A warehouse tenant in the Baltimore industrial corridor might need a showroom component that mimics retail.

Practical Steps for Maryland Landlords

Audit Your Current Leases: Before signing a new tenant, review the exclusive use grants in your existing leases. Create a “master matrix” of prohibited and exclusive uses for your property to avoid conflicting grants.
Consult Local Zoning Maps: Check the specific zoning code for your property’s location (e.g., Montgomery County Zoning Ordinance vs. Prince George’s County Zoning Ordinance). Ensure the “permitted use” you are agreeing to is actually legal.
Define “Nuisance”: Expand the definition of nuisance in the Use clause to cover modern issues like strong odors (cannabis or food), excessive vibration (gyms), or parking congestion (high-volume medical or service uses).

Protecting Your Investment Requires Precision

The “Use” clause is not merely a description of a business; it is a legal boundary that defines the character, profitability, and legal compliance of your real estate asset. In a state as diverse as Maryland, where the regulatory landscape shifts from the dense urban core of Baltimore to the suburban expanse of Howard County, relying on generic lease templates is a calculated risk that often fails. Ambiguity is the enemy of the landlord. By crafting Use clauses that are specific, forward-looking, and integrated with the rest of the lease document, you protect not only your rental income but the long-term value of your portfolio.