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When the loss of an anchor tenant strains business

On Behalf of | Jan 8, 2018 | Commercial Real Estate |

At the end of the year, we wrote a post about how leasing space in shopping centers is all about anchor tenants (when it comes to altering the typical landlord-tenant power dynamic). If you are an anchor tenant, this changes how you approach commercial lease negotiations. In short, being an anchor tenant means that you generally have more power and flexibility in negotiating the terms of your lease, because the anchor tenant usually drives significant, consistent business to the shopping center, making the landlord keen on signing a lease.

But what happens to the other tenants when that anchor tenant decides to leave?

In some cases, you can guard against this in the lease, but even so (as in the case we describe below), this might not prevent the landlord from refusing to honor the terms of the lease.

At Corfield Feld LLP, we represented a nationwide chain, which suffered the fallout of both a decline in foot traffic and a changed customer demographic at the shopping center, when another anchor tenant (a Ralphs grocery store), vacated.

The parties knew ahead of time that Ralphs would vacate, so they wrote into the lease our client’s right to rent abatement or lease termination, a right that would become available to our client if the traffic and demographics changed.

That’s exactly what happened, but the landlord refused to honor the terms of the lease, neither providing an abatement nor allowing for termination, likely because other tenants were leaving. The shopping center faced increasingly dire financial circumstances and ultimately went into receivership.

In this type of situation, litigation is often necessary.

We won the case on a motion for summary judgment, meaning that there were no facts in dispute, and the landlord had no good excuse for refusing to honor the terms of the lease.