Co-Tenancy Clause

What Is a Co-Tenancy Clause?

A co-tenancy clause in retail lease contracts permits tenants to reduce their rent on the off chance that key tenants or a certain number of tenants leave the retail space. A large or key tenant is a big draw for traffic, particularly in shopping centers, and is in many cases one of the major reasons a tenant decides to situate in a specific shopping center. A co-tenancy clause gives the tenant some form of protection as reduced rent to compensate for the loss of traffic.

Grasping the Co-Tenancy Clause

Co-tenants are normally the anchor tenants in a shopping center. They are the large, famous stores that [attract increased traffic](/people strolling through) that spills over to different stores in a similar location. In times of economic stress, when a few retailers are forced to close outlets to shave costs, landlords as a rule wind up losing a ton of revenue. Practicing co-tenancy clauses further enhances the loss of revenue as residual tenants demand a reduction in rent, the stress of which could at last lead to bankruptcy.

A co-tenancy clause is typically a fiercely negotiated thing in a retail lease. Landlords hate co-tenancy provisions since they have zero control over the activities of different tenants or tenants in the shopping center. They accept a certain amount of vacancy is inescapable, and their revenue from the shopping center can be seriously influenced by a co-tenancy clause.

Whether a tenant gets a co-tenancy clause is largely dependent on their arranging leverage. Landlords search out national and large territorial tenants in view of their name recognition, ability to pay higher rents, and their backbone. They're likewise alluring a direct result of their drawing power and ability to raise the public profile of a shopping center. These tenants are in a preferred bargaining posture over more modest tenants to get co-tenancy protection.

Common Landlord Conditions for Co-Tenancy Clauses

Typically, a landlord will maintain that a tenant should fulfill certain conditions to get a co-tenancy provision in a lease. The biggest condition is much of the time an expectation that the tenant can't be under default on the lease on the off chance that they wish to summon a co-tenancy clause. A landlord may likewise expect that the tenant show evidence of a drop in sales during the co-tenancy violation period as compared to the period prior to the violation. A landlord will likewise need to ensure that assuming that the tenant summons a co-tenancy provision, there won't be different cures permitted under the lease for such violation. A landlord would rather not be in a situation where the tenant gets the benefit of a co-tenancy violation cure and afterward sues for different damages.