Don't Rely on Implied Continuous Operations Covenant

Don’t rely on an “implied” continuous operations covenant—that is, one that isn’t expressly stated in the lease—if you want your retail tenant to continuously operate from its space. Some courts might find that one exists anyway in certain situations, such as when the lease requires a long-term tenant to pay a minimal base rent but substantial percentage rent, limits the tenant’s use and ability to assign and sublet, and bars competition. But most courts won’t recognize an implied continuous operations covenant under typical leases.

Instead of relying on this, put an “express continuous operations” covenant in your lease that says the tenant must continuously, actively, and diligently use and occupy the entire space for the permitted use during set hours throughout the entire lease term (and any renewals). That way, you can be sure that the tenant is barred from going dark or operating sporadically from its space.

It’s best to include an express continuous operations covenant in your lease to avoid the time, expense, and hassle of going to court to determine whether your lease meets the implied continuous operations covenant’s criteria.