CRE glossary
Co-tenancy clause
A co-tenancy clause is a retail lease provision that gives the tenant rent reductions or termination rights if the shopping center loses key anchor tenants or falls below a defined occupancy threshold. The clause protects retailers whose business depends on the foot traffic generated by adjacent tenants, losing the anchor erases the revenue assumption underlying the lease.
Co-tenancy clauses are retail-specific and exist because retail rent is anchored on traffic, not just space. A health food store that signs a 10-year lease assuming a Whole Foods anchor doesn't survive a Whole Foods departure at the same rent. The co-tenancy clause is the retailer's escape valve: if the anchor leaves, rent reduces (often to a percentage-of-sales structure) or the tenant can terminate.
Two types: opening co-tenancy (anchor must be in place when the tenant opens, protects against the anchor never opening) and operating co-tenancy (anchor must remain in place during the term, protects against anchor departure). Operating co-tenancy is the more contested one and the more important for long-term retail leases.
The triggers are negotiated. Tenant-friendly clauses define multiple triggers: a named anchor leaving (e.g., 'if Whole Foods is no longer operating'), category occupancy thresholds (e.g., 'if total anchor occupancy drops below 70%'), and overall center occupancy (e.g., 'if total occupancy is below 80% for more than 6 months'). Landlord-friendly clauses limit triggers to a single named anchor with a long cure period.
Example
- Anchor: Whole Foods
- Required during term
- Co-tenancy threshold
- 75% center occupancy
- Whole Foods leaves Year 4
- Center drops to 68% occupancy
- Co-tenancy failure triggers
- Rent drops to 50% of base for 6 months
- If not cured in 12 months
- Tenant can terminate
Broker perspective
Co-tenancy is the most important non-economic clause in any retail deal. As a tenant-rep on retail, push for layered triggers (anchor + category + total) and a tight cure period (6 months max). The rent reduction during co-tenancy failure should be material, at least 50% of base rent or shift to a percentage-of-sales structure with a low minimum.
Frequently asked
People also ask
Are co-tenancy clauses enforceable?
Yes, when properly drafted. Courts have enforced rent-reduction clauses regularly. Termination clauses face higher scrutiny but are also enforceable.
What's a 'cure period' on co-tenancy?
Time the landlord has to replace the missing anchor before triggers kick in. 6 months is tight; 18 months is loose. Negotiate to 6–9 months.
Does co-tenancy apply to office?
Rarely. Office tenants don't typically depend on neighbor traffic the way retail does. Some shared-amenity buildings have weak versions, but it's not standard.
Can the landlord buy out a co-tenancy clause?
Sometimes, landlord pays a defined sum to terminate the co-tenancy protection. Negotiate this carefully; usually not worth giving up the protection cheaply.
Related terms
Base rent
The headline rent before pass-through expenses, usually quoted in $/SF/year and the starting point for every comp.
Letter of intent (LOI)
A non-binding outline of the major business terms, rent, term, TI, options, that becomes the basis for the binding lease.
Exclusive use clause
Tenant's right to be the only operator in a defined business category within the shopping center.
See co-tenancy clause extracted from a real lease.
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