What is a Co-Tenancy Clause?
A Co-Tenancy Clause is defined as one or more clauses in a commercial lease agreement that allows tenants to make lease obligations conditional on the construction, opening or continued operation of other specified co-tenants in a commercial space (often a retail centre). It can also include agreements on reduction in rent or a release in rental obligations from the landlord in the case a certain percentage or number of tenants either don’t open or leave the building.
Generally, co-tenants are the anchor tenants in a location. They can be the large stores or attractions that bring traffic to a location, often resulting in spill over business for the other tenants. Co-tenants can play a large part in choosing your commercial space, but what should happen if that co-tenant decides not to open, or moves out? For tenants seeking space that will attract foot or spillover traffic, a Co-Tenancy Clause provides the tenant with some form of compensation protection should they see a loss in traffic to their space.
A Co-tenancy clause should include the following:
- The terms of a Co-Tenancy failure
- How Co-Tenancy failure will be enforced
- Any reductions or other release of obligations should Co-Tenancy occur
- The types of replacement tenants deemed satisfactory to a tenant should a Co-Tenant decide not to build or to close their location
Commercial Co-Tenancy Clauses: The Good, The Bad, and the Ugly
A successful Co-tenancy clause is clear and works for both the tenant and the landlord, and tenants need to ensure they are fairly compensated or otherwise protected should unforeseen circumstances occur. It is highly recommended tenants who are considering leasing a commercial space that is conditional upon co-tenants have a representative to help protect their needs against possible future Co-tenancy issues.
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