A shopping center’s foot traffic often depends heavily on one or two anchor tenants — a grocery store, a major retailer, a movie theater. When an anchor leaves, smaller tenants can see sales drop sharply through no fault of their own. A co-tenancy clause is the lease provision designed to address exactly this risk.
What Is a Co-Tenancy Clause?
A co-tenancy clause conditions a tenant’s obligations — typically rent, but sometimes even the obligation to remain open — on the continued presence of specific anchor tenants or a minimum percentage of overall center occupancy. If the co-tenancy condition fails (an anchor closes, or occupancy drops below a stated threshold), the tenant gains specific rights under the lease.
Two Types of Co-Tenancy Provisions
- Opening co-tenancy — a condition that must be satisfied before the tenant is even required to open for business, tied to whether certain anchors or a percentage of the center is open at lease commencement
- Ongoing (operating) co-tenancy — a continuing condition throughout the lease term, triggered if an anchor later closes or occupancy drops during the lease
Both matter, but ongoing co-tenancy is generally the more heavily negotiated of the two, since it protects the tenant for the life of the lease, not just at move-in.
Common Remedies When Co-Tenancy Fails
- Rent abatement — a reduction to a lower “alternative rent” (sometimes percentage-rent-only, or reduced base rent) while the co-tenancy failure continues
- The right to close temporarily without being in default, while continuing to pay reduced rent
- Termination rights — if the co-tenancy failure continues beyond a defined period (commonly 6-12 months), the right to terminate the lease altogether
What Landlords Will Push Back On
Landlords are typically cautious about co-tenancy clauses because they create real financial exposure when a major tenant leaves — exactly the moment the landlord is under the most pressure. Expect negotiation over:
- Which specific tenants count as “anchors” for purposes of the clause
- The occupancy percentage threshold that triggers relief
- The length of the cure period before a tenant can exercise termination rights
- Whether replacement of a departed anchor with a “comparable” tenant cures the co-tenancy failure
Why Smaller Tenants Often Skip This — and Shouldn’t
Co-tenancy clauses are sometimes seen as leverage reserved for larger, national tenants. But smaller, independent businesses arguably need this protection more — they typically don’t have the capital reserves to absorb a prolonged sales drop caused by circumstances entirely outside their control. It’s worth raising in negotiation even for a smaller footprint lease, particularly in a shopping center anchored by one or two dominant tenants. Pairing co-tenancy language with an exclusive use clause gives a tenant protection from both directions — losing an anchor, and gaining unwanted direct competition.
Signing a retail lease in a shopping center with anchor tenants? Brent A. Levison, P.A. has over 25 years of experience negotiating co-tenancy protections for commercial tenants. Contact the firm today for a consultation.
The information in this article is provided for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please consult a qualified attorney.