Who benefits from a co-tenancy clause?

A co-tenancy clause is a provision in a lease agreement that allows a tenant to maintain their lease under specific conditions, particularly regarding the occupancy of other tenants in the same property. This clause typically stipulates that if certain tenants (often key anchor tenants) leave, the tenant with a co-tenancy clause can renegotiate their lease terms or even opt to leave without penalties.

The tenant who requests the co-tenancy clause benefits the most because it provides them with a safety net. For example, if a major store or service in a shopping center vacates, it could potentially reduce foot traffic and sales for surrounding tenants. With the co-tenancy clause in place, the requesting tenant can ensure that their business remains viable or has the option to exit the lease if the property's tenant mix is unfavorable. This offers them a layer of security that helps them manage risks associated with changes in the property’s occupancy. Therefore, tenants who actively seek a co-tenancy clause gain significant leverage and protection within their leasing arrangements.