Co-Tenancy Clauses Implicated When Tenants Go Dark

CoStart has reported that a larger retail printer ink chain has closed all of its 152 stores.

Landlords to review their leases to determine if this conducts violates a continuous operation covenant under the lease and if this impacts any co-tenancy covenants. Landlord should also make sure they have reviewed the actual co-tenancy covenants for all leases in shopping centers so they are prepared to respond.

Many landlord have unwittingly agreed to co-tenancy clauses in their commercial leases. A co-tenancy clause usually grant a tenant special rights in the event that either (a) a named tenant ceases operation or (b) a specified percentage of stores cease to be open and operating.  Tenants often have a right to pay a reduced rent for a period of time (such as 25% to 50% of base rent) and then elect to terminate their lease or resume operations after a specified period (such as 12 months). These rights can significantly impair the landlord’s cash flow and ability to make loan payments.