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Tenant Protections

Co-tenancy clause

Also called: co-tenancy provision, cotenancy

A co-tenancy clause lets a retail tenant reduce rent or terminate its lease if named anchor tenants close or if overall occupancy at the center falls below a stated threshold. It exists because a small retailer's sales depend on the traffic the rest of the center generates.

A tenant signing in a center anchored by a grocer is buying that grocer's traffic as much as the four walls. Co-tenancy is the contractual expression of that.

Two kinds, usually both

  • Opening co-tenancy applies before the tenant opens: if the named anchors are not open and operating by the delivery date, the tenant can delay opening, pay reduced rent, or walk.
  • Ongoing co-tenancy applies during the term: if an anchor goes dark or occupancy falls below a threshold for a stated period, the remedy kicks in.

The variables that decide whether it is worth anything

  • Named anchors versus a generic occupancy percentage. Naming the specific tenants you are relying on is stronger than a percentage that a center can satisfy with replacement tenants nobody visits.
  • The threshold. 80 percent of gross leasable area occupied is common. Check whether the denominator includes anchor space the landlord does not own, because in many centers the anchors are on ground leases and excluded, which makes the percentage far easier to satisfy.
  • The cure period. Landlords want 9 to 12 months to replace an anchor before any remedy applies. Tenants want 3 to 6.
  • The remedy. Alternate rent is commonly a percentage of gross sales, often in the 2 to 6 percent range, in lieu of base rent. A termination right usually only arises after the reduced rent period runs without a cure.
  • The replacement standard. A clause satisfied by any replacement tenant of similar size is much weaker than one requiring a replacement of comparable quality and use.

Where the landlord redline goes

Co-tenancy language is heavily negotiated and predictably attacked. The changes to watch across rounds: converting named anchors to a generic occupancy test, extending the cure period, adding a requirement that the tenant's own sales have declined by a stated percentage before the remedy applies, and capping the alternate rent period so the tenant reverts to full rent whether or not the center recovered.

Related but distinct

Co-tenancy is about other tenants leaving. A go dark clause is about this tenant closing. An exclusive use clause is about competitors arriving. Retail leases usually need all three and they are negotiated separately.

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Related terms

  • Go dark clause

    A go dark clause governs whether a retail tenant may close its store while continuing to pay rent through the end of the term.

  • Exclusive use clause

    An exclusive use clause bars a landlord from leasing other space in the same property to a tenant whose primary business competes with the protected tenant's stated use.

  • Kick-out clause

    A kick-out clause gives a retail tenant the right to terminate its lease early if sales fail to reach a stated threshold by a measurement date, usually after the third or fourth year.

  • Percentage rent

    Percentage rent is additional rent a retail tenant pays based on gross sales above a stated breakpoint, letting the landlord participate in the location's performance.

This page is general information, not legal advice. Review lease language with qualified counsel.