Tenant Accidentally Waives Its Co-Tenancy Rent Cut Rights

October 28, 2019

What Happened: A shopping center lease let the tenant pay reduced rent if an anchor closed and wasn’t replaced within 120 days. In July 2016, an anchor tenant, Sports Authority, closed and the landlord didn’t find a replacement for nearly three years. But the tenant forgot about the co-tenancy clause and continued to pay full rent for two-and-a-half years. When it finally realized its mistake in December 2018, it sought to take back the rent reductions it missed out on by announcing plans to withhold $254,583 from future rent payments.

What Happened: A shopping center lease let the tenant pay reduced rent if an anchor closed and wasn’t replaced within 120 days. In July 2016, an anchor tenant, Sports Authority, closed and the landlord didn’t find a replacement for nearly three years. But the tenant forgot about the co-tenancy clause and continued to pay full rent for two-and-a-half years. When it finally realized its mistake in December 2018, it sought to take back the rent reductions it missed out on by announcing plans to withhold $254,583 from future rent payments. Too late, said the landlord, and the case wound up in court.

Decision: The federal district court in Minnesota sided with the landlord and ruled that the tenant waived its rent reduction rights.

Reasoning: Nothing in the co-tenancy clause can be read as allowing the tenant to exercise its rent reduction option retroactively, the court said. Letting the tenant exercise the rent reduction option retroactive to 25 months ago would effectively strip the landlord of its lease right to demand, after 12 months of paying reduced rent, that the tenant vacate or go back to paying full rent, it reasoned.  

  • Michaels Stores Inc. v. Sun Life Assur. Co. of Canada: 2019 U.S. Dist. LEXIS 162767, 2019 WL 4645448

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