Co Tenancy Clause Retail Center

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Co-Tenancy Clause | Retail Center

in Retail center, a typical developer will look for anchor tenants. One or more anchor tenants that have a retail lease in place create “traffic”. A Co-tenancy clause helps tenants with potentially losing foot traffic.  Traffic is obviously enticing for a smaller retail establishment. In a mall, we will see Macys , Nordstrom etc, think of the Domain in Austin.  In the Domain example, the rest of the area is filled in with a multitude of different tenants. This type of environment builds a coherent system of retailers.

What is Co-tenancy Clause?

A Co-tenancy clause provides rent relief if the collaborative system breaks down in a retail center. For existing tenants, if multiple tenants leave the property there may be remedies. An Example would be a nail salon and package store rely on an anchor tenant for foot traffic. If the anchor tenant such as HEB goes away, the nail salon and the package store can suffer immensely.  A Co-tenancy clause is negotiated during their lease. The clause states that should the HEB leave, there will be a reduction in their rent.

Co-tenancy Clause example

There are 3 areas to look at within a co-tenancy clause provision.  

  • Co-tenancy threshold – should always include a threshold where the co-tenancy is executed. Example: at 65% , meaning if less than 65% of the tenants are occupying the property then the rent reduction activates. This could be 65% of the tenants or 65% of the square footage occupying the retail center.
  • Cure period- is some cases the landlord may have a cure period to scale up the retail center with new tenants
  • Relief of rent- defines what the rent relief is.  Example : Rent reduction is 6% of the tenant’s gross sales, not to exceed the minimum rent due under the lease.

Property owner’s perspective 

There may be stipulations in place for a co-tenancy provision for the landlord. They can be 

  1.  Default language- co tenancy is not allowed if the tenant is in default due to lack of rent payments.
  2. Evidence- The tenant asking for the rent relief is to provide documentation they have been harmed by vacancies.
  3. Multiple remedies- there may be limitations imposing on remedies. Example: a tenant may have rent relief and the ability to terminate their lease. A landlord will limit the remedy options available to tenants.

Shire Commercial has helped clients find suitable lease solutions since 2004. We also provide recommendations for space planners, although most of the time the landlord’s team has planners they like to use. Contact Shire Commercial!