A struggling economy has made the issue of co-tenancy clauses in leases more important than ever for both landlords and tenants. With the vacancy rate for strip malls at a national average of 10.9%, the country’s highest level in 20 years, co-tenancy clauses have proven to be a problematic concession for landlords and a valuable tool for tenants. Co-tenancy clauses provide retail tenants with remedies if one or more tenants in a shopping center fail to open or leave. Landlords are seeing co-tenancy rights exacerbate the financial strain caused by high vacancy rates, by allowing tenants of underperforming centers to pull out of their leases or demand discounts in rent.

When negotiating a co-tenancy clause on behalf of a landlord or tenant, consider the following key questions:

- Is the co-tenancy right tied to a specific tenant, a percentage of occupancy, or both?

- Does the landlord have the right to replace a major tenant with a comparable tenant? If so, who decides whether the tenant is “comparable”?

- Does the tenant have the right to discount rent or terminate the lease if the landlord violates its co-tenancy rights? Are these rights subject to a grace period?


In today’s leasing environment, landlords are finding that no tenant is immune from failure. As reported in the Wall Street Journal, even grocery stores, once thought to be recession proof, have proven vulnerable with the advent of discount retailers like Wal-Mart and Target selling food at low prices. Expect the battle over co-tenancy rights to intensify now that landlords and tenants have experienced first-hand the impact that such rights can have during a recession.