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Retail leases: Issues in co-tenancy provisions

A co-tenancy provision allows a tenant certain remedies if specific conditions are not met. In most cases, they usually deal with a certain type of main tenant in a shopping center or having a specific number of tenants at all times.

Most tenants want these provisions because they can relieve businesses from having to open, operate or stay in a shopping center that doesn't meet the proposed percentage of occupancy. Here are some of the issues that co-tenancy provisions often deal with.

-- Opening co-tenancy: There are two categories of co-tenancy provisions. The first one is an opening co-tenancy. A tenant doesn't have to pay full rent unless or until the shopping center has a specific occupancy percentage.

-- Operating co-tenancy: A tenant who has opened a store doesn't have to pay full rent if the other stores or a specific number of other stores are closing.

-- Replacement tenants: Landlords generally want to avoid listing a specific store in a co-tenancy provision because they known just how fickle the retail sector can be.

-- Conditions: Landlords usually want tenants to meet certain conditions before invoking a co-tenancy provision. For example, a landlord may want the tenant to prove that there has been a drop in sales. In addition, a landlord may also want the tenant to agree that the co-tenancy provision is the only remedy the tenant has. This can help prevent the landlord from being sued by the tenant.

-- Remedies: There are three categories of remedies for co-tenancy violations. The first is rent abatement, meaning the tenant doesn't have to pay full rent as long as the co-tenancy violation exists. The second is for the termination of the lease. This is one a landlord doesn't want to grant if at all possible. It is usually only allowed if the co-tenancy violation continues for a long time. Finally, the third remedy is for the tenant to delay the opening of his or her store or paying the first month's rent.

While landlords may do everything they can to avoid granting co-tenancy provisions in retail leases, the deal may not get done without one. Because of the importance of co-tenancy provisions, it is very important to have an experienced attorney review the issues and work to find a compromise.

Source: americanbar.org, "1 Top Ten Issues in Co-Tenancy Provisions in Retail Leases," Matthew P. Seeberger, accessed June 10, 2016

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