Estate and Succession Planning
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Landlords: During Lease Negotiations, Be Aware of Co-tenancy Provisions
It is becoming increasingly common for tenants, particularly retail tenants in shopping centers, to require the inclusion in their leases of provisions allowing the termination of the lease or modification of lease terms if another tenant of the shopping center fails to materialize or discontinues operation of their business. Usually such provisions relate to the presence and continued operation of an anchor tenant, such as a grocery store or other large box retailer, but they can relate to any type of business that the tenant believes is significant to the success of their business. For example, a restaurant might require the inclusion of conditions in its lease that a particular large office business or government facility, with a significant number of employees, remain in operation near the premises being leased.
Among the conditions that may be included are provisions that may delay the commencement of the tenant’s lease until the applicable co-tenant has opened and commenced operations. Alternatively, a reduced amount of rent may be provided for in the lease until the co-tenant commences operation. A co-tenant provision may permit the early termination of a tenant’s lease or a substantial reduction in rent, if an existing co-tenant discontinues operation or vacates the landlord’s property.
Sometimes a “co-tenant clause” will only require a category or type of tenant to occupy the shopping center. For example, a lease may require only that a grocery store, or home improvement store, of a certain size occupy the premises. In addition, the lease may require that a certain minimum amount of space in the landlord’s property be open and operating. Failure to meet the specified minimum occupancy may permit the tenant to terminate its lease or reduce its rent.
If co-tenancy provisions are unambiguous and complete and are material terms of the lease, it appears clear that Florida court’s will enforce them. See, e.g., Jenkins v. Eckerd Corporation, 913 So.2d 43, 50-56 (Fla. 1st DCA 2005). Accordingly, from a tenant’s perspective, language that says that the co-tenancy terms have been negotiated and are material inducements to the signing of the lease will increase the likelihood that those terms will be enforced. A landlord will want to include language allowing for the substitution of the applicable co-tenant with another tenant with similar attributes. For example, allowing for the substitution of one anchor tenant for another. A landlord may also want to include provisions for a cure or “grace” period, allowing the landlord time to find a replacement before any rent adjustment or termination option kicks in.
Of course, if a co-tenancy provision is breached, the tenant will need to act promptly to avoid a claim by the landlord that the tenant has waived the condition.
About the Author:
Joel C. Zwemer is an attorney and Shareholder in Dean Mead’s Fort Pierce office. He concentrates his practice in the areas of commercial business and real estate litigation, creditors’ rights and bankruptcy. He has successfully litigated a wide range of cases in federal and state courts and regularly represents financial institutions in business and bankruptcy cases and litigation in Fort Pierce and Port Saint Lucie. He may be reached at (772)464-7700 or jzwemer@www.deanmead.com.
