DEFINITION of 'Co-Tenancy Clause'

A common clause in retail lease contracts that allows tenants to get a reduction in rent from landlords if key tenants or a certain number of tenants leave the space. A large or key tenant is a big draw for traffic, especially in malls, and are often one of the major reasons a tenant chooses to locate in a specific mall. A co-tenancy clause provides the tenant with some form of protection in the form of reduced rent to compensate for loss of traffic.

BREAKING DOWN 'Co-Tenancy Clause'

Co-tenants are typically the anchor tenants in a mall. They are the large, popular stores that attract increased traffic that spills over to other stores in the same location. In times of economic stress, when some retailers are forced to close outlets to shave costs, landlords usually end up losing a lot of revenue. Exercising co-tenancy clauses further amplifies the loss of revenue as remaining tenants demand a reduction in rent, the stress of which could ultimately lead to bankruptcy.

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