What Are Co-Tenancy Clauses in Commercial Real Estate Leases? by Kevin Sanz, CCIM, MSIRE

Posted on June 15, 2021

The way in which many commercial real estate properties are set up, there is often an anchor tenant(s), such as a grocery store or gym, that generates a steady stream of daily foot traffic, which then helps to support the business of their neighboring tenants. Based on this model, it is not uncommon for commercial leases to include co-tenancy clauses that allow these smaller tenants to receive rent reductions and other lease concessions in the event one or more anchor tenants close.

While beneficial to tenants, these co-tenancy clauses can obviously have negative implications for property owners and their net income, making it imperative for prospective investors to carefully review the finer details of each tenant’s existing lease agreement. Under certain circumstances, these provisions may offer landlords some flexibility especially when they have deep relationships with their tenants. As we’ve seen during the COVID-19 crisis, tenants and landlords can work together to negotiate mutually beneficial terms of co-tenancy triggering defaults, the time period the landlord has to cure the default and the rental relief remedies available to tenants.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.