Substitute Tenants Didn't Satisfy Cotenancy Requirement

A lease's cotenancy clause gave a tenant the right to pay a lower rent if the center's anchor, a clothing retailer, moved out and wasn't replaced by a “comparable substitute tenant” that occupied the space for a “first-class retail purpose.” The anchor, which leased 16,300 square feet, assigned its space. The assignee eventually sublet 12,000 square feet of the space to a children's recreation center. The subtenant later sublet the entire space, operating a day-care center during the day and the recreation center at night. Several years later, the tenant claimed that the owner violated the cotenancy requirement because the assignee and its subtenant weren't a “comparable substitute tenant” for the original anchor.

A Connecticut appeals court ruled that the owner had violated the cotenancy requirement starting when the assignee sublet 12,000 square feet of the space to the recreation center. The replacement tenants—meaning the recreation and day-care centers—weren't “comparable substitute tenants” of the original anchor, which sold merchandise in its entire space, said the court. The recreation center sold merchandise in a small area, and the day-care center sold no merchandise. The court also found that neither replacement tenant was a “first-class retail” establishment. The tenant should have paid lower rent during the cotenancy violation period. So the court required the owner to return $206,741 (the difference between the base rent and lower rent during the cotenancy violation period) to the tenant [Jo-Ann Stores, Inc. v. Property Operating Co., LLC].