If you’ve negotiated or abstracted a retail lease lately, you’ve likely run into the co-tenancy clause and possibly debated it for weeks.
In 2025, co-tenancy has become more than just another lease term. It’s a line in the sand for many tenants and a calculated risk for landlords.
Let’s break down why this clause is getting so much attention and how it’s shaping the future of retail leasing.
What Is a Co-Tenancy Clause?
In short, a co-tenancy clause allows a tenant to reduce rent or exit the lease if certain conditions aren’t met usually related to the occupancy of key anchor tenants or the overall health of the shopping center.
Typical triggers:
- A major anchor tenant (e.g., Target, Whole Foods) vacates or closes
- Overall occupancy of the center drops below a certain percentage (e.g., 75%)
- A promised tenant mix or retail ecosystem isn’t maintained
Why It’s Heating Up in 2025
1. Retail Hasn’t Fully Stabilized
Even though physical retail is bouncing back, it’s doing so unevenly. Some regions are booming, others are struggling. Tenants don’t want to be left paying full rent in a dying center.
2. Anchor Tenants Are Shrinking
Brands like Macy’s, Bed Bath & Beyond, and Regal Theaters have closed hundreds of locations. This sends a ripple effect through surrounding tenant spaces that rely on anchor-driven foot traffic.
3. Experience-Driven Retail Demands a Mix
Many leases are now built around a retail “ecosystem” — coffee shop, boutique fitness, grocery, service tenants. If key components disappear, the value of a tenant’s location goes down dramatically.
A Quick Example
A dessert café in a suburban lifestyle center signed a lease tied to a grocery anchor and two junior anchors. When the grocery store pulled out in Year 2, foot traffic dropped by more than 50%.
Thanks to a co-tenancy clause, the café was allowed to:
- Switch to percentage rent (instead of fixed rent)
- Remain in the space at a sustainable rate until the landlord replaced the anchor
- Eventually exit the lease if the condition wasn’t cured in 12 months
Tenant vs. Landlord: Who Wins?
For Tenants:
- Reduces risk in uncertain or evolving centers
- Ensures rent reflects real business potential
- Creates flexibility in a long-term commitment
For Landlords:
- Adds financial uncertainty to the lease
- May affect financing and property valuation
- Can be structured with “cure periods” or limited remedies to protect revenue
What Lease Professionals Should Look For
When drafting or reviewing co-tenancy clauses, pay attention to:
- Who qualifies as an anchor? (name the tenant, not just a square footage)
- What happens if the co-tenancy fails?
- Rent reduction?
- Percentage rent?
- Termination right?
- Is there a cure period? (e.g., landlord has 6–12 months to find a replacement)
- What’s excluded from the clause? (temporary closures, remodeling, etc.)
The 2025 Trend: Smarter Co-Tenancy Structures
Landlords are getting creative:
- Offering modified co-tenancy tied to occupancy rather than specific tenants
- Including step-down rent instead of full termination rights
- Structuring co-tenancy to expire after the first few years, once the center stabilizes
Meanwhile, tenants are pushing back on clauses that include too many carve-outs or unrealistic cure periods.
Final Thoughts
Co-tenancy clauses aren’t going away, they’re evolving. In a market that values flexibility and foot traffic, these clauses give tenants confidence and landlords incentive to adapt. At Mohr Partners, we help clients navigate, negotiate, and abstract co-tenancy clauses with precision, turning complex lease language into strategic advantage.
