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In the Spotlight: The Co-Tenancy Clause
When purchasing a car from the local dealership, or a new outfit from, say, Ann Taylor, the often-stated legal maxim is caveat emptor, let the buyer beware. After Kleban v. Ann Taylor (USDC Connecticut, CV-01879), when a mall or shopping center landlord is marketing space and offers a potential retail tenant a co-tenancy provision, the most applicable legal maxim is caveat venditor, let the seller beware. Landlords can suffer great unintended consequences from a co-tenancy clause that is negotiated as an accommodation to get a tenant into the space and then explodes years later.
Co-Tenancy Clauses
A typical co-tenancy clause allows a retail tenant to obtain a reduction in rent if: 1) key or anchor tenants vacate or stop operating in the center; or 2) a certain number of the other tenants vacate or stop operating in the center. This gives the retail tenant some reassurance that it will have rent protection if a vacancy at the center reduces the anticipated foot traffic. But the right mix of retailers is just as important as the volume of foot traffic. As a result, smaller retailers may also want a co-tenancy clause that offers some protection with regard to the type of retailers that are in the center. The proper assortment of retailers will ensure that the foot traffic consists of shoppers with the ideal customer profile for the given retailer. It is unlikely, for example, that the retail jeweler Tiffany will open up next to Shop Rite in a shopping center. On the other hand, Tiffany is commonly seen in malls and shopping centers with department stores such as Saks, Bloomingdales and Nordstrom.
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