Navigating Co-Tenancy Clauses in Retail Leases: Definition, Impact, and Negotiation Insights

A co-tenancy clause in retail lease contracts offers tenants the option to decrease their rent in the event that key tenants or a specified number of tenants vacate the retail space. Key tenants, often anchor stores, are crucial for attracting traffic, particularly in malls. The clause serves as a protective measure, providing tenants with reduced rent to offset potential losses in foot traffic.

Co-tenants typically refer to anchor tenants, the large and popular stores that draw increased traffic to a mall, benefiting other stores in the same location. When key tenants leave a retail space or a mall, other tenants may experience reduced foot traffic and income.

Exercising co-tenancy clauses can exacerbate revenue loss for landlords as remaining tenants demand rent reductions. This financial strain could potentially lead to bankruptcy for some businesses.

Co-tenancy clauses are often contentious points during retail lease negotiations. Landlords, who cannot control the actions of other tenants in the shopping center, resist these clauses due to potential revenue losses. The inevitability of some vacancies is acknowledged, but landlords fear significant impacts on shopping center revenues.

Landlords usually face substantial revenue losses when retailers close outlets during economic downturns. The stress increases when tenants exercise co-tenancy clauses, demanding rent reductions. This scenario poses a risk of financial strain that might lead to bankruptcy for landlords.

The inclusion of a co-tenancy clause often depends on the negotiating leverage of the tenant. National and large regional tenants, with their name recognition, higher rent-paying ability, and stability, are favored by landlords. These tenants, due to their drawing power and impact on a shopping center’s public profile, are better positioned to negotiate co-tenancy protection compared to smaller tenants.

A co-tenancy clause allows tenants to reduce rent if key tenants or a specified number of tenants leave the retail space, impacting foot traffic.

Landlords resist co-tenancy clauses as they fear revenue losses and lack control over other tenants’ actions in a shopping center.

Smaller tenants may find it challenging to negotiate co-tenancy protection compared to national or large regional tenants due to differences in negotiating leverage.

Yes, landlords often have the ability to set conditions for agreeing to a co-tenancy clause to mitigate potential revenue risks.