This article reflects our general observations and opinions. It is not legal advice and not a definitive statement of California law, and every situation depends on its own facts.
A co-tenancy clause ties your rent, and sometimes your right to stay, to who else is trading in the shopping center. If the anchor store goes dark or occupancy drops below a stated level, the clause may let you pay reduced rent or even terminate. In our experience it is one of the most valuable protections a retail tenant can negotiate, and one of the most carefully limited by landlords. The value is almost entirely in the drafting.
Our short answer for a Los Angeles retail tenant: ask for a co-tenancy clause whenever your sales depend on traffic that someone else generates, and read every definition in it as though you will one day be arguing about it.
What a co-tenancy clause does
There are generally two kinds. An anchor or “named tenant” clause is triggered if a specific store, such as a grocery or department store, closes or stops operating. An occupancy clause is triggered if the share of the center’s leasable space that is open and operating falls below a threshold. Many leases combine the two. The clause then says what you get when it is triggered, which is usually alternate rent, a termination right, or both.
These clauses matter more than they used to. Anchor closures and vacancy in older LA centers are no longer rare, and a tenant who signed a ten-year lease on the strength of a busy neighbor can be left paying full rent in a half-empty center.
The definitions that decide the dispute
Most co-tenancy fights are about words rather than facts. We would read these closely:
- “Open and operating.” Does a store that is open three days a week count? Does a dark store still paying rent count? Does a temporary pop-up?
- The anchor itself. Is the anchor named, or can the landlord substitute a “replacement of comparable quality,” and who decides what is comparable?
- The denominator. For an occupancy clause, which space is counted: the whole center, only the building you are in, or only the retail portion? Excluding certain buildings can quietly move the percentage.
- Exclusions. Closures for remodeling, casualty or condemnation are often carved out for a period, which can mean months of full rent.
The remedy ladder
A trigger without a remedy is only a conversation. Our view is that a good clause works in steps. First comes alternate rent: base rent drops to a percentage of gross sales, or to a stated reduction, while the shortfall continues. Second, if the shortfall lasts beyond a cure period, a termination right arises. Third, there is a deadline to exercise it, and that deadline is where tenants most often lose the right, because it can run from the date the trigger occurred rather than the date you noticed.
We also look at whether alternate rent is a true replacement for base rent or only a temporary measure, whether it also reduces your share of common area charges, and whether the landlord can cure by re-letting the space to any tenant or only a comparable one. A cure by a tenant who is not a real draw may technically satisfy the clause while doing nothing for your sales.
Where tenants run into trouble
We want to be candid about the weak points, because this is a clause that often disappoints. Landlords commonly insist on an exclusive remedy provision, meaning the co-tenancy clause is your only recourse for a center that underperforms. Many leases also state that the landlord has no obligation to keep any tenant open. And the tenant may be required to prove that the loss of the co-tenant caused the harm, or must stay open and operating itself to keep the right.
Percentage rent adds another wrinkle. If your lease uses percentage rent, the interaction between alternate rent and the sales breakpoint should be spelled out, a point we touched on in our article on percentage rent and gross sales definitions. Otherwise a reduction in one place can be offset in another.
Why this is a negotiation, not a form
A standard form lease rarely includes a co-tenancy clause, and a landlord with a strong center may refuse one outright. Leverage varies. A tenant who is itself a draw, a restaurant that anchors a pad, or a retailer taking a large space in a struggling center is in a different position from a small tenant in a full center. In practice the clause is often traded for something else, such as a shorter term, a higher percentage rent breakpoint or a tighter go-dark right.
Timing matters too. The best moment to ask is during the letter of intent stage, before the lease draft hardens the landlord’s position. If the clause is added late, expect pushback on the definitions rather than the idea. If you are already in a lease without one, the options are limited, and an amendment usually has to be bought with something.
Finally, remember the clause is only as good as your ability to prove the trigger. Keep dated photos of closures, copies of the rent roll or center directory where you can get them, and a record of when you gave notice. A termination right exercised late or by the wrong method may be lost.
Talking to us
We review and negotiate commercial leases for Los Angeles tenants and owners. Our work on lease review and negotiation is billed hourly or for a flat fee agreed in advance, not on contingency. Nothing here guarantees any result, and every lease turns on its own wording. Call us at (310) 556-9692.
Related reading: our commercial lease negotiation guide, percentage rent in LA retail leases, use clauses and exclusivity, and assignment and subletting.
This article is general information only. Reading it does not create an attorney-client relationship, and it should not be relied on in place of advice about your own lease.
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