What Is a Co-Tenancy Clause?

A co-tenancy clause in retail lease contracts allows tenants to reduce their rent if key tenants or a certain number of tenants leave the retail space. A large or key tenant is a big draw for traffic, especially in malls. It's often one of the major reasons why a tenant chooses to locate in a specific mall. A co-tenancy clause provides the tenant with some form of protection in the form of reduced rent to compensate for a potential loss in traffic.

Understanding the Co-Tenancy Clause

Co-tenants are typically the anchor tenants in a mall. They're the large, popular stores that 澳洲幸运5官方开奖结果体彩网:attract increased traffic that spills over ꦐto other stores in the same location.

Landlords usually end up losing a lot of revenue when 澳洲幸运5官方开奖结果体彩网:some retailers are forced to close these outlets to shave costs in times of economic stress.

A co-tenancy clause is usually a hotly negotiated item in a retail lease. Landlords dislike co-tenancy provisions because they can't control the actions of other tenants or occupants in the shopping center. They believe a certain number of vacancies is unavoidable and their revenues from the shopping center can be severely impacted by a co-tenancy clause.

Whether a tenant obtains a co-tenancy clause is largely dependent on their negotiating leverage. Landlords seek national and large regional tenants because of their name recognition, their ability to pay higher rents, and their staying power. They're also desirable because of their drawing power and their ability to raise the public profile of a shopping center. These tenants are in a better negotiating position to get co-tenancy protection than smaller tenants.

🐼 Commඣon Landlord Conditions for Co-Tenancy Clauses

A landlord will usually want a tenant to satisfy certain conditions in order to obtain a co-tenancy provision in a lease. The biggest condition is often a stip🔜ulation that the tenant cannot be under default on the lease if they wish to invoke a co-tenancy clause. 

A landlord may also require that the tenant show evidence of a drop in sales during the co-tenancy violation period as compared to the period before the violation. A landlord will also want to make sure that there won't be multiple remedies allowed under the lease for such a violation if the tenant invokes a co-tenancy provision. A landlord doesn't want to be in a situation where the tenant obtains the benefit of a co-tenancy violation remedy and then sues for other damages.

The Bottom Line

A co-⭕tenancy clause prote♏cts the tenant, not the landlord. It addresses an issue over which the landlord has very little control: whether a key tenant will close its doors and vacate. But the clause can be a lifesaver for tenants who have lost business and traffic because another tenant vacated.

Consider consulting with a real estate attorney if you think one of these clauses could aid your small business. You'll most likely need assistance in reaching an agreement on a co-tenancy clause with your landlord.