Unlocking Cotenancy Agreements: Protecting Your Business Lease in Shopping Centers

A cotenancy agreement is a crucial provision found in many shopping center leases. This agreement ensures that a tenant’s rent can be reduced significantly or that the lease itself may be terminated if specified neighboring tenants, named within the agreement, cease operations or close their businesses (referred to as ‘going dark’). This article will delve into the importance of a cotenancy agreement, describing how it benefits tenants in a shopping center environment.

What is a Cotenancy Agreement?

A cotenancy agreement is a lease clause that links a tenant’s lease terms to the occupancy status of other businesses within the same shopping center. Specifically, it mandates certain remedies for a tenant if one or more ’named cotenants’—key businesses whose presence increases foot traffic and customer volumes—go dark. These remedies can include the right to reduce rent, halt payments for common area maintenance (CAM), or terminate the lease altogether.

Example of a Cotenancy Agreement

Let’s say Rooms from Heaven, a home décor retail tenant, is located within a bustling shopping center. High Store and Low Places are prominent retailers also situated in the same shopping center and are specified as cotenants in Rooms from Heaven’s lease agreement. According to the cotenancy provision:

• If either High Store or Low Places goes dark, Rooms from Heaven can initially reduce its rent by 50%.
• Rooms from Heaven can also discontinue its payments for common area maintenance (CAM).
• Should the landlord fail to secure a satisfactory replacement for the dark cotenant within one year, Rooms from Heaven has the right to terminate its lease.

Benefits of a Cotenancy Agreement

1. Rent Adjustments and Savings:

   • Reduced rent protects tenants financially in emerging situations where adjacent businesses generating foot traffic close their doors.

2. Flexibility and Lease Termination:

   • Tenants gain more control over their lease decisions, allowing them to adjust to market conditions and surrounding occupancy changes.

3. Tenant Empowerment in Negotiations:

   • Cotenancy provisions place pressure on landlords to maintain high occupancy rates and find viable replacement tenants rapidly.

Conclusion: Ensure Your Lease Offers Cotenancy Protection

Cotenancy agreements represent an essential layer of protection for tenants in shopping centers. When negotiating lease terms, businesses must ensure these agreements are explicitly detailed to safeguard against unfavorable changes in the business environment.

Frequently Asked Questions

Q: What are the typical remedies in a cotenancy agreement?

A: Typical remedies often include reduced rent, suspension of common area maintenance (CAM) fees, and lease termination rights if named cotenants go dark without replacement.

Q: How does a cotenancy agreement benefit tenants?

A: It financially protects tenants by adjusting rent and maintenance costs directly correlated to foot traffic-generating businesses, thereby aiding them during potential downturns in adjacent business activity.

Q: Can a cotenancy agreement affect a landlord’s ability to manage a shopping center?

A: Yes, it can intensify pressure on landlords to swiftly replace dark tenants with adequate alternatives to maintain lease value for remaining tenants.

Q: Should all shopping center leases include a cotenancy agreement?

A: Including a cotenancy agreement can be highly beneficial, particularly for tenants relying significantly on the foot traffic generated by neighbouring stores. It’s essential for lease negotiations.

Related Terms: Lease Termination, Rent Reduction, Tenant Liability, Common Area Maintenance, Assigned Tenants.