What triggers a co-tenancy clause?

A co-tenancy clause is typically triggered when a named anchor tenant ceases operations, or when overall property occupancy falls below a specified threshold. The specific trigger depends on the lease language and may require that the failure persist for a defined period (often 30–90 days) before remedies activate.

Are co-tenancy clauses only found in retail leases?

Co-tenancy clauses are overwhelmingly associated with retail properties, but similar provisions occasionally appear in mixed-use developments and, rarely, in multi-tenant office buildings where a major tenant's presence is material to the leasing environment. Medical office buildings anchored by a hospital system may also include analogous provisions.

Can a landlord cure a co-tenancy violation?

Yes. Most co-tenancy clauses include a cure period during which the landlord can replace the departed tenant or restore occupancy above the threshold. Cure periods typically range from 12 to 24 months. If the landlord cures the violation, the tenant's full rent obligation resumes.

How do co-tenancy clauses interact with percentage rent?

When co-tenancy triggers a rent reduction, many leases shift the tenant to a percentage-of-sales-only rent structure. This means the tenant pays a defined percentage of gross sales (commonly 4–8%) rather than a fixed base rent, aligning the landlord's income with the reduced foot traffic environment.

What is the difference between a co-tenancy clause and a kick-out clause?

A kick-out clause gives a tenant the unilateral right to terminate a lease based on the tenant's own performance (e.g., if sales fall below a threshold). A co-tenancy clause grants remedies based on the performance or presence of other tenants. Both clauses can exist in the same lease.

Co-Tenancy Clause in Commercial Real Estate Leases

What Is a Co-Tenancy Clause?

A co-tenancy clause is a lease provision that conditions a tenant's obligations—typically rent amount, operating requirements, or lease continuation—on the presence and operation of specified other tenants or a minimum occupancy level within the property. These clauses are most common in retail leases, where a tenant's business viability depends on foot traffic generated by neighboring tenants, particularly anchor tenants.

Co-tenancy clauses represent one of the most financially significant provisions in retail and mixed-use leases. When triggered, they can reduce a tenant's rent by 25–75% or grant termination rights, making them critical during due diligence and portfolio valuation. They are especially common in national and regional retailer leases in enclosed malls and power centers.

Types of Co-Tenancy Requirements

Opening Co-Tenancy

Opening co-tenancy conditions require that certain tenants (usually anchors) or a minimum occupancy level be achieved before the tenant is required to open for business or begin paying full rent.

Example language: "Tenant shall not be required to open for business until (a) the Anchor Tenant (defined as [Named Anchor]) is open and operating in at least 80% of its premises, and (b) at least 70% of the gross leasable area of the Shopping Center is occupied and open for business."

Remedies for failure: If opening co-tenancy is not met by a specified date, the tenant may defer its opening date, pay reduced rent (often a percentage of sales only), or in some cases, terminate the lease entirely.

Ongoing Co-Tenancy

Ongoing co-tenancy requirements must remain satisfied throughout the lease term. If conditions are violated at any point, the tenant's remedies activate.

Example language: "In the event that (i) fewer than two (2) of the following tenants are open and operating: [Named Tenant A], [Named Tenant B], [Named Tenant C], [Named Tenant D]; or (ii) less than 65% of the gross leasable area of the Shopping Center is occupied and open for business (a 'Co-Tenancy Failure'), then Tenant's Base Rent shall be reduced to the greater of (x) [reduced amount] per square foot or (y) six percent (6%) of Gross Sales, until such Co-Tenancy Failure is cured."

Named Anchor Co-Tenancy

Some co-tenancy provisions specifically name anchor tenants whose presence is required. This creates particular risk during anchor departures or bankruptcies.

Example language: "The continued presence of [Macy's / Nordstrom / Target] operating in not less than 75% of its leased premises shall constitute a material condition of this Lease."

Occupancy Threshold Co-Tenancy

Rather than naming specific tenants, these provisions set a minimum occupancy percentage for the overall property.

Example language: "Landlord shall maintain occupancy of not less than 75% of the gross leasable area of the Shopping Center throughout the Lease Term."

Co-Tenancy Remedies: What Happens When Clauses Are Triggered

When a co-tenancy condition is violated, tenants typically have one or more of the following remedies:

Remedy Type	Description	Typical Terms
Rent reduction	Base rent drops to a percentage of gross sales or a reduced fixed amount	50–75% reduction or sales-only rent (4–8% of gross sales)
Rent abatement	Tenant pays no base rent during the co-tenancy failure period	Less common; typically limited to 6–12 months
Termination right	Tenant may terminate the lease if the failure is not cured within a specified period	Cure period usually 12–24 months
Delayed opening	Tenant defers opening date until co-tenancy conditions are met	Common for opening co-tenancy only
Offset right	Tenant may offset certain costs (buildout, marketing) against reduced rent	Rare; negotiated by high-value tenants

Why Co-Tenancy Clauses Are Critical During Due Diligence

Co-tenancy clauses create cascading financial risk that can dramatically impact property valuation:

The domino effect: When one anchor tenant closes, co-tenancy clauses across multiple inline tenants may trigger simultaneously. A single anchor departure at a 500,000 SF shopping center can activate rent reductions for 15–30 inline tenants, reducing gross rental income by 20–40% overnight.

Valuation impact: When anchors close, co-tenancy-triggered rent reductions can spread across a center, lowering income and value well beyond the vacated space, as many retail owners saw during the 2020–2023 period of retail disruption.

Hidden exposure: Co-tenancy provisions are often buried in lease amendments or side letters rather than the base lease, making them easy to miss during manual review. Reviewing the amendments and side letters, not only the base lease, is what catches them.

How Co-Tenancy Varies by Property Type

Enclosed malls: Most complex co-tenancy structures. Named anchor requirements are standard, and inline tenant leases frequently reference 2–4 specific anchors. Occupancy thresholds typically range from 65–80%.

Power centers: Co-tenancy provisions focus on category-specific anchors (e.g., a grocery anchor, a home improvement anchor). Thresholds may be lower (60–70%) because power center tenants often have stronger standalone draw.

Lifestyle centers and mixed-use: Co-tenancy provisions are evolving to include non-traditional anchors like entertainment venues, fitness concepts, and food halls. Occupancy thresholds may be measured differently (e.g., by frontage or "activated" space rather than gross leasable area).

Grocery-anchored centers: Typically have strong single-anchor co-tenancy provisions tied specifically to the grocery tenant. If the grocery anchor closes, many inline tenants gain reduced rent or termination rights.

How AI Extracts Co-Tenancy Clauses

Co-tenancy clauses are among the most complex provisions to abstract due to their multi-part structure (conditions, thresholds, named tenants, remedies, cure periods, and termination triggers). AI-powered extraction handles:

Named entity recognition: Identifying specific tenant names referenced in co-tenancy conditions and cross-referencing them against the property's current rent roll.
Threshold extraction: Parsing occupancy percentages, square footage minimums, and operating requirements from varied legal language.
Remedy mapping: Classifying the type and magnitude of each remedy (rent reduction percentage, abatement period, termination notice requirements).
Cross-document linking: Detecting co-tenancy modifications in amendments, side letters, and lease riders that may override or supplement base lease terms.
Risk scoring: Flagging leases with co-tenancy provisions that reference tenants known to be at risk (bankruptcy filings, store closure announcements).

Manual co-tenancy abstraction is slow because of the cross-referencing required. Crevanta extracts the clause and cites it to the document, page and clause it came from, including any amendment that changed it, so the review starts from the source.