What is a Co-Tenancy Clause?
A co-tenancy clause is an essential term in a lease retail agreement. The clause permits commercial retail tenants (for example, shopping mall tenants) to exercise remedial rights if stipulated conditions are not realized.
Generally, the clause is inserted to protect tenants against economic losses occasioned by the under listed factors:
1 Where other tenants specified in the lease retail agreement failed to open, operate, or stop operating their business that makes concerns in the shopping center and no suitable replacement was made. Usually, the specified tenant(s) is a household name or famous brand that has the traction to drive customers to the center.
2. Where tenants do not occupy the threshold percentage of the shopping center’s gross leasable areas before the commencement of the retail lease agreement and afterward.
The remedy available to a tenant is dependent on the stage where a co-tenancy clause is to take effect. For instance, where the shopping center is new and yet to become operative, the tenant will not be under obligation to open and pay full rent until either or both factors listed above are fulfilled. This is known as Opening Co-Tenancy.
Where the shopping center is already in existence, the tenant could pay a reduced rent or terminate the lease altogether if either or both factors ceased to exist during the pendency of the lease retail agreement.
It is not unusual to have the co-tenancy clause negotiated by parties to the agreement in such a way as to integrate their respective interests.