Landlords Ignore Co-Tenancy Clauses at Their Peril

Co-tenancy clauses are designed to protect tenants’ business interests by providing a rent reduction or lease termination if anchor stores cease operations., writes White.

PHILADELPHIA—An arbitration panel’s recent decision has reaffirmed the business expectations of national retailers who have long relied on co-tenancy clauses to avoid collateral damage when a shopping center anchor store goes out of business.  In a time of changing market conditions, this sends a message to landlords that they ignore these agreed upon protections at their peril.

A panel of three arbitrators from the American Arbitration Association in June enforced a co-tenancy clause against a Pennsylvania landlord, awarding retailer Ross Dress for Less $1.9 million in damages, including attorneys’ fees. The award, confirmed by the Eastern District of Pennsylvania in September, reflects the longstanding belief among real estate professionals that co-tenancy clauses are alive and well.