Don't Rely on Implied Covenant if You Want Tenant to Continuously Operate

Don't rely on an “implied” continuous operations covenant if you want your retail tenant to continuously operate from its space, says New Orleans attorney Marie A. Moore. An implied covenant is one that isn't expressly stated in the lease. 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, warns Moore.

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), she advises. That way, you can be sure that the tenant is barred from going dark or operating sporadically from its space, Moore warns. Even if the courts in your area might recognize an implied continuous operations covenant, 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, she adds.

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Marie A. Moore, Esq.: Member, Sher Garner Cahill Richter Klein & Hilber, LLC, 909 Poydras St., Ste. 2800, New Orleans, LA 70112-1033; (504) 299-2108; mmoore@shergarner.com.