Co-Tenancy Clause: How It Works in Retail Leases
A co-tenancy clause is a retail lease provision that makes a tenant's full rent, and sometimes its duty to open or stay open, depend on other stores in the shopping center operating, usually named anchor tenants or a minimum share of the center's space. If that condition fails, the tenant typically pays a reduced alternative rent for a set period and, if the failure continues, may gain the right to terminate the lease.
Opening vs operating co-tenancy
Tenants ask for co-tenancy because part of what they pay for is the traffic an anchor brings in. When a grocery or department store anchor closes, inline sales can fall although nothing in the tenant's own lease has changed. The clause shifts some of that risk to the landlord, which controls leasing, and it comes in two types.
| Opening co-tenancy | Operating co-tenancy | |
|---|---|---|
| When it applies | Before the tenant opens or starts paying full rent | During the term, after the tenant has opened |
| Typical condition | Named anchors, and often a share of the center's space, are open by a set date | Named anchors stay open and occupancy stays above a threshold |
| First remedy | Tenant may delay opening and rent commencement, or open and pay alternative rent | Alternative rent once the failure outlasts a grace period |
| If the failure continues | Termination right if the condition is not met by an outside date | Termination right if the failure lasts past a further period |
Opening co-tenancy matters most in new developments, where the tenant signs on a leasing plan that may not come together. Operating co-tenancy tends to surface years into a lease. Many leases contain both.
What triggers a co-tenancy failure
A named anchor or required tenant stops operating
The lease names specific tenants, or describes them by type and size, and requires them to be open. A description gives the landlord more room to cure, and many leases accept a replacement that meets stated criteria, such as minimum size and retail use, once it is actually open for business.
Occupancy falls below a threshold
The lease requires a minimum share of the center's gross leasable area (GLA) to be open, say 70% in an illustrative lease. The measurement rules matter as much as the number: whether anchor space, outparcels, and non-retail occupants count, and whether space must be open and operating or merely leased. A store that has gone dark but still pays rent is leased, not open.
Grace periods and excused closures
Most clauses do not trigger the day an anchor closes. The failure usually has to last a stated period, often several months, giving the landlord time to re-lease, and temporary closures for casualty, remodeling, or force majeure are commonly excused.
Tenant remedies: alternative rent, then termination
The usual remedy has two stages. First, the tenant pays alternative rent instead of minimum rent, commonly a percentage of gross sales, a reduced fraction of minimum rent, or the lesser of the two. Leases differ on whether it also replaces CAM, taxes, and insurance, and on whether it starts automatically or only on the tenant's notice.
Second, if the failure continues past a longer period, often a year or more, the tenant may terminate. The right is usually time-limited, and if the tenant misses its notice window, many leases restore full rent even though the condition is still unmet. A landlord cure ends alternative rent, sometimes only after the replacement has been open for a stated period. These termination rights follow many of the same drafting patterns as other early lease termination clauses.
Worked example (illustrative numbers)
Minimum rent is $10,000 a month, and the clause requires a named grocery anchor to be open. After the anchor has been closed for 180 days, the tenant pays the lesser of 50% of minimum rent or 6% of gross sales. After 12 months of that, it may terminate by giving notice within 60 days.
The anchor closes. Full rent continues through the grace period.
Alternative rent starts. On $120,000 of monthly sales, 6% is $7,200 and 50% of minimum rent is $5,000, so the tenant pays $5,000.
The landlord has collected $60,000 less than scheduled. The 60-day termination window opens.
With no notice sent, many landlord-drafted leases restore full rent, even with the anchor space still dark.
How landlords limit co-tenancy exposure
One anchor closing can move every inline lease tied to it onto alternative rent at once, and tenants that leave push occupancy below other leases' thresholds. In many malls the anchor owns its building under a reciprocal easement agreement (REA) rather than a lease, so the landlord cannot simply keep it open. Common landlord limits include:
- Anchors described by type and size rather than name, with replacements allowed
- Long grace periods, and a cap on how long alternative rent can run
- A termination right that lapses if the tenant does not use it within its window
- A sales test, so remedies apply only if the tenant's sales fall by a stated percentage
- Conditions that the tenant itself is open, operating, and not in default
- Rights personal to the original tenant, so they do not pass to an assignee
- A sunset that ends the protection after a set number of lease years
Tenants push the other way. Where a deal lands depends on bargaining power, so treat any “typical” figure as a starting point for negotiation, not a market standard.
Co-tenancy, radius, and exclusive-use clauses
Retail leases often pair co-tenancy with a radius restriction, which bars the tenant from opening another store within a set distance, mainly to protect the landlord's percentage rent, and an exclusive-use clause, which bars the landlord from leasing to a competing use.
The three interact. A replacement anchor that cures co-tenancy for one tenant can breach another tenant's exclusive, so landlords check both before signing. Tenants sometimes negotiate that the radius restriction falls away if co-tenancy fails. And exclusive-use remedies often mirror co-tenancy remedies, so the two blur together in an abstract unless they are recorded separately.
Co-tenancy terms to track in the lease abstract
“Co-tenancy: Yes” tells a reader almost nothing. Each moving part needs its own field, checked against what is actually happening at the center.
Required tenants and replacements
The named anchors or described tenant types, and the criteria a replacement must meet to cure a failure.
Occupancy threshold and measurement
The percentage, the area it is measured against, whether space must be open or merely leased, and what is excluded.
Grace periods and notice
How long a failure must last before remedies start, and whether alternative rent begins automatically or only on notice.
Alternative rent formula
The sales percentage or reduced rent, which charges it replaces, and when full rent resumes after a cure.
Termination right and window
When the tenant may terminate, the deadline for notice, and what happens if that deadline passes.
Conditions and sunset
Any sales test, the tenant's own operating and no-default conditions, whether the right survives assignment, and when it expires.
These terms drift. A renewal amendment may change the threshold, swap the named anchor, or waive co-tenancy in exchange for a rent concession, and an anchor that rebrands can leave the abstract naming a store that no longer exists. Read the lease with every amendment (see how lease amendments change the abstract) and record the condition's current status. Buyers ask for it in acquisition due diligence, and it should match the rent tenants confirm in estoppel certificates.
Capturing co-tenancy terms with Abstria
Abstria's AI lease abstraction software extracts co-tenancy provisions as part of the 200+ fields it pulls from each lease, amendment, and acknowledgement, in 2-5 minutes per document. Each field links back to its source clause in the dual-panel editor, so a reviewer checks the actual trigger and measurement language rather than a summary. For the full list of what an abstract covers, see the lease abstraction guide.
Co-tenancy clause FAQ
What is co-tenancy?
Co-tenancy is the arrangement in a retail lease where the tenant's rent or operating obligations depend on specified other tenants, or a minimum level of occupancy, being present in the same shopping center. Without a co-tenancy clause, a tenant generally has no contractual right to rent relief when an anchor closes.
What are co-tenants?
In retail leasing, co-tenants are the other tenants in the same center, especially the anchors a co-tenancy clause depends on. In property law, co-tenants are people who own property together, such as tenants in common or joint tenants, and in residential leasing the term often means roommates on the same lease.
Do office or industrial leases have co-tenancy clauses?
Rarely. Office and industrial tenants seldom rely on neighboring tenants for customers. Co-tenancy clauses appear mainly in shopping centers, malls, outlet and lifestyle centers, and the retail portions of mixed-use projects.
How is co-tenancy different from a go-dark clause?
A go-dark provision covers the tenant's own store: whether it must stay open, and what the landlord can do, such as recapture the space, if the tenant closes while still paying rent. Co-tenancy covers other stores. The two meet when an anchor's lease lets it go dark, because that closure can trigger co-tenancy remedies across the center.
Are co-tenancy clauses enforceable?
Courts generally treat them as negotiated commercial terms, but disputes are common over how occupancy is measured, whether a replacement tenant qualifies, and whether a store was "open and operating." Some courts have also examined whether a particular alternative rent provision works as an unenforceable penalty. Outcomes depend on the drafting and the jurisdiction, so specific questions belong with counsel.
What happens to co-tenancy clauses when a shopping center is sold?
The leases generally bind the buyer, so a failure that started before closing continues after it. Buyers check which tenants are paying alternative rent, which are near a termination window, and how close the center is to each occupancy threshold, since one more vacancy can trigger remedies in several leases at once.
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