What is a co-tenancy default and how does it protect retail tenants if an anchor store closes?

A co-tenancy clause in a retail lease protects smaller tenants by tying their own lease obligations to the continued presence of a key anchor tenant or a minimum overall occupancy level in the shopping center.

How Co-Tenancy Provisions Work

• Anchor tenant requirements specify that if a named anchor store, like a major department store, closes or leaves, smaller tenants gain certain contractual rights.
• Occupancy threshold requirements similarly protect tenants if the shopping center's overall occupancy drops below a specified percentage, regardless of which specific stores close.

What Protections Typically Apply

• Reduced rent or percentage-only rent often kicks in automatically once a co-tenancy default is triggered, reflecting the reduced foot traffic smaller tenants experience.
• Early lease termination rights may become available to affected tenants if the anchor vacancy or occupancy shortfall persists beyond a specified cure period.

Because anchor stores drive significant foot traffic for surrounding retailers, co-tenancy clauses give smaller tenants meaningful financial protection against the ripple effects of losing a major neighboring store.