Don't Let Tenant Turn ‘Hours Cotenancy’ into Right to Go Dark

Savvy shopping center tenants often demand that you add an “hours cotenancy” clause to the lease. This clause says that the tenant will be required to open during the center's normal hours of operation only if a certain percentage of other tenants are also open. But if the hours cotenancy clause you use is like many we've seen, it may have a loophole that could turn a simple hours cotenancy clause into something more dangerous.

Here's the loophole: Nothing in the clause prevents the tenant from exercising drastic remedies against you if the clause is violated in any way. In effect, the tenant could turn an hours cotenancy clause into a right to go dark clause, warns Chicago attorney Ellen B. Friedler.

Owners often strongly resist giving a tenant a right to go dark even in an operating cotenancy clause, notes Friedler. They instead give a tenant such remedies as a right to pay a percentage of gross sales instead of minimum rent and percentage rent, if one or more other tenants close or go dark during the lease term and aren't replaced within a set time period. But based on the way some hours cotenancy clauses are drafted, if a certain percentage of the tenants in the center are, say, closing an hour early, the tenant could argue that the hours cotenancy clause gives it not just the right to shut down for an hour, but also the right to go dark for the rest of the lease. This could happen even though you never intended this result or had refused to grant the tenant a right to go dark in the operating cotenancy clause, warns Friedler.

Limit Tenant's Remedy

To plug this loophole, say in the lease that if the hours cotenancy clause is violated, the tenant should have only one remedy: to stop operating only during those hours (or partial hours) when the hours cotenancy requirement isn't being met. For example, suppose the center's normal hours of operation each day are from 9:00 am through 9:00 pm. But less than the required percentage of the other tenants are open on Saturdays and Sundays from 7:30 pm through 9:00 pm. The tenant's sole remedy would be to not open on Saturdays and Sundays from 7:30 pm through 9:00 pm, says Friedler.

To set out this sole remedy, add the following language to your lease's hours cotenancy clause, says Friedler (you should define “Normal Shopping Center Hours” and “Hours Cotenancy Requirement” elsewhere in the lease): CLLI0019

Model Lease Language

Notwithstanding anything to the contrary contained herein, if Tenant is open for business during Normal Shopping Center Hours and the Hours Cotenancy Requirement is not met with respect to any of such Normal Shopping Center Hours, Tenant's sole remedy shall be that Tenant shall not be required to operate during the hour(s) or partial hour(s) that the Hours Cotenancy Requirement is not met (so that, for example, if Normal Shopping Center Hours are 9:00 am through 9:00 pm, and the Hours Cotenancy Requirement is met during all of the Normal Shopping Center Hours, except Saturdays and Sundays from 7:30 pm through 9:00 pm, then Tenant shall not be required to operate on Saturdays and Sundays from 7:30 pm through 9:00 pm.).

Practical Pointer: Make sure that the hours cotenancy clause is based on a percentage of the tenants actually operating at the center (as opposed to a percentage of the gross leasable area), says Friedler. This way, if you have excessive vacancies at your center, they won't affect the hours tenants are operating, explains Friedler.

CLLI Source

Ellen B. Friedler, Esq.: Partner, Neal, Gerber & Eisenberg LLP, 2 N. LaSalle St., Ste. 2200, Chicago, IL 60602; (312) 269-5242; efriedler@ngelaw.com.