Co-Tenancy Clause
Categories: Real Estate, Investing
Walk into any mall in America these days. It likely looks like a graveyard. Thanks to Amazon, no one needs to go to the mall to hang out in Spencer’s or to purchase a Cinn-A-Bon.
A lot of the retailers in the mall have something called a co-tenancy clause in their contracts. It allows them to reduce their rent if certain tenants or a percentage of tenants depart the retail location.
For example, imagine a mall that has a big movie theater. That movie theater is critical to the success of drawing additional traffic to the mall. If a store nearby pays $2,000 per month in rent to the property manager, they might have a clause that says their rent will drop to $1,500 if the movie theater terminates its lease.