Limit Cotenant Remedies When Stores Go Dark

If you signed a lease with an operating cotenancy clause, you may feel that you’re under pressure to keep the status quo at your center or pay the price by allowing the tenant with a cotenancy right to pay reduced rent or take advantage of other concessions if one or more other tenants close or go dark during the lease term and aren’t replaced within a designated period of time. But you don’t have to give a tenant unfettered remedies if that scenario arises.

If you have to grant your tenant’s request to include an operating cotenancy clause for the deal to go through, make sure you draft the lease in such a way that allows you to control any remedies that you agree to. When negotiating your cotenancy clause leases, there are several strategies that will allow you to effectively limit your tenants’ access to remedies in the event that specific stores go dark in your center.

Consider, at the minimum, expanding the type of replacements you might make that would be acceptable to the tenant. That widens the pool of prospective tenants, instead of forcing you to search for very specific tenants to fill vacant space.

You should also avoid offering a termination right. Instead, offer rent abatement—but put tight reins on this remedy with limitations on how much and for how long the tenant can abate its rent.  Require the tenant to continue paying other expenses association with the lease, such as CAM costs. A tenant shouldn’t get a free ride at the center just because its rent is abated due to a cotenancy violation.

The key is to give up as little as possible in case the tenant has the option to exercise its cotenancy right. For additional strategies, and a Model Lease Clause that can help you, see “Negotiate Narrow Cotenancy Remedies for Tenant,” available to subscribers here.