United States: Co-Tenancy Clauses In A Lease For A New Mall Construction

Last Updated: August 10 2015
Article by Leonard N. Budow

In the fashion world, we are constantly being approached by landlords and brokers anxious to bring our brands into the mix of their stores in a Mall. A Mall is a unique situation whereby the marketing of your brand is sublimated to the greater whole of the Mall; if the Mall is a success your store supposedly will also be a success. But this sublimation leads to a fundamental conundrum; when does the marketing for the Mall in toto, inclusive of brands that may be not on the same level as your own, detrimentally affect the good will of your brand? If the answer is that the marketing and demographics of the Mall are oriented towards a customer not willing or able to patronize your brand, except on an aspirational level, entry into the Mall will be a negative; both in terms of return on CapEx as well as dilution of the Brand.

This seems obvious enough as far it goes. You or your agent walk the Mall, review the occupancy, request representations as to sales per square foot and voila, we know if it's a fit. However, what do you do if you are approached for a space in a new Mall construction? Obviously the developer and its agents will try to prove that your brand is not only a good fit but on the flip side they will use your brand to entice others into the Mall. One could say a virtuous cycle...unless the cycle is broken by misrepresentations of potential tenancies.

To ensure that your brand will be a good fit and not the anchor in the marketing process a Co-tenancy clause is an insurance policy to keep the cycle virtuous. While each Co-tenancy should be calibrated to the particular project there are the proverbial seven (7) deadly sins—when someone is not shall we say fully forthcoming– to consider.

First, the list. You will want to make sure that the Landlord lists as potential co-tenants the main brands that seduced you to enter into the Lease negotiations in the first instance. Since this is a moving target, there may be a list of ten (10) from which the Landlord has to secure say five (5) to (7) signed leases before you are obligated to commence operations.

Second, from the list there may be your anchors; the Brand(s) that must sign leases otherwise you would not proceed. Usually it is one (1) or two (2) and may include a major anchor. But the reasoning is obvious: you do not want your Brand to be the linchpin leveraged for success. Since your Brand positioning is sublimated to the Mall it must be insulated by having core co-tenancies in sync with your own.

Third, timing. When do you have to start spending money on construction, immediately in anticipation of the projected Grand Opening Date or only after the landlord has signed a minimum number of the co-tenancies? Clearly you want breakpoint so your CapEx is not wasted. But this can be ameliorated by...

Fourth, a tenant improvement allowance, the TI. TIs are common enough but are more aggressively promoted in new mall projects. Depending on the size of the store and importance of the Brand full build out costs inclusive of hard and soft costs are negotiable. If the landlord is bearing the cost then timing is ameliorated except you will have to float the costs pending proof of completion.

Fifth, quality of the purported leases. This is the tricky part, how does one ensure that the signed co-tenancy leases are "real" leases. Are they short term pop ups, licenses or leases with favorable kick out provisions? In effect you want to make sure that even if for the Grand Opening Date the co-tenancy requirements are technically met, they reflect true commitment commensurate with your own lease term; if not the value of the co-tenancy clause is totally vitiated. So to hedge, you would require that the co-tenancy leases meet certain standards; as a simple example they must be for terms of no less than five (5) years without a kick out provision. An early kick out provision on favorable terms to the co-tenant is merely an option not the commitment commensurate to insulate your risk.

Sixth, location. The mere fact that the co-tenancy requirements are met does not mean you have immediate value if the brands are located on a different levels, or areas of the Mall. If your brand is in the North 2nd floor of a Mall and your co-tenants are in the South 1st floor the traffic for your co-tenants are unlikely to accrue to your benefit.

Seventh, what happens if the co-tenancy is not met even colorably by opening day. Termination? Probably not. The remedy should be to go to percentage rent only until the co-tenancy is met with a drop dead date of between 12 to 18 months. If the co-tenancy is not met by the drop dead date then tenant usually has the right to terminate.

New projects can be exciting and economically incentivized since the developer is highly motivated to secure tenancies. But the devil is in creating the traction and making sure you are not alone in the vanguard of the developer's project. A carefully crafted and modulated co-tenancy clause while not a panacea to an inductive analysis of the merits of the particular project, can be a safety net to ensure the economic viability of your shop.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Leonard N. Budow
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions