What is a co-tenancy clause?

Co-Tenancy Clause is a lease provision, common in retail leases, that ties a tenant's rent obligations or occupancy rights to the continued presence of specific anchor tenants or a minimum occupancy level within the shopping center or retail development.

How a Co-Tenancy Clause Works

• The clause specifies required anchor tenants or a minimum occupancy percentage that must be maintained in the center.
• If the co-tenancy requirement is not met, the tenant may be entitled to reduced rent, percentage-only rent, or the right to terminate the lease.
• Co-tenancy triggers often distinguish between opening co-tenancy, required at lease commencement, and ongoing co-tenancy throughout the lease term.
• Landlords are typically given a cure period to address a co-tenancy failure before tenant remedies take effect.

What Is a Co-Tenancy Clause Used For

• Protects retail tenants whose sales depend on foot traffic generated by anchor stores or overall center occupancy.
• Provides tenants with financial relief if key anchors close or occupancy drops significantly.
• Gives landlords a strong incentive to maintain a healthy tenant mix within the center.
• Commonly negotiated by national and regional retail chains as a condition of signing a lease.

Best Practices for Negotiating Co-Tenancy Clauses

• Clearly define which tenants qualify as required anchors and what occupancy percentage triggers the clause.
• Specify clear remedies, cure periods, and rent adjustment mechanisms in the lease language.
• Regularly monitor center occupancy and anchor tenant status throughout the lease term.
• Balance tenant protections with landlord flexibility to re-lease or reposition the center over time.

Co-tenancy clauses help align landlord and tenant interests around the health of a retail center, providing tenants protection while incentivizing landlords to maintain strong occupancy and tenant mix.