Co-Tenancy Clauses Explained
A co-tenancy clause protects a retail tenant when the shopping center loses the traffic it was promised. If an anchor or a set amount of the center goes dark, the tenant gets reduced rent and sometimes the right to leave.
Opening co-tenancy
The tenant does not have to open or pay full rent until named tenants are open, or until a set percent of the center is leased and open. This is common in new centers.
Operating co-tenancy
After the tenant opens, if the anchor closes or occupancy drops below a set level, the tenant's remedy starts. This is the more common version.
Typical remedies
- Pay a percent of sales instead of base rent, or a flat reduced rent such as 50%
- A cure period for the landlord to replace the anchor, often 6 to 12 months
- A right to terminate if the problem is not cured
What landlords push back on
Landlords will often limit co-tenancy to the anchor only, cap how long reduced rent lasts, require the tenant's sales to drop before the remedy kicks in, and allow a replacement tenant of "similar quality" to count as a cure. Define what counts as a replacement in the LOI.
Who gets it
National tenants and strong local operators usually get co-tenancy. Smaller tenants may not. It is still worth asking, since it costs nothing to put in the LOI.
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- Exclusive Use Clauses in Retail Leases
Other guides
This guide is general information, not legal advice. Deal terms vary by market and by deal.