When you sign a lease for a spot in a shopping center, you are really buying two things: the four walls, and the neighbors. The walls are written down. The neighbors, unless you ask, are a rumor.
Two clauses turn that rumor into something you can enforce. A co-tenancy clause lowers your rent, or lets you leave, if the stores you were counting on go dark. An exclusive use clause stops the landlord from renting the space next door to your direct competitor. Neither one is automatic, and neither is as strong as it sounds unless the details are right. This article walks through both, for the independent tenant reading the lease at the kitchen table. (A note on words: “co-tenancy” also means two people owning a property together. That is a different animal. Here it means the shopping-center kind.)
The short version
Three questions settle most of it. Which neighbors am I counting on, and what happens to my rent if they leave? What may the landlord not rent next door, and how exactly is that written? And if the landlord breaks either promise, do I get a rent cut that applies by itself, or a lawsuit?
What Is a Co-Tenancy Clause, and What Does It Protect?
A co-tenancy clause is a lease provision that ties your rent, or your duty to open or stay open, to who else is open and operating in the center. If specific stores or a minimum share of the center is missing, it lets you delay opening, pay less rent, or leave. The clause comes from tenants who know that a shop is only as busy as the center around it (California Lawyers Association, Real Property Law Section).
People ask for it for three plain reasons: a larger anchor store brings foot traffic to the small shops, complementary stores make the center a destination, and nobody wants to be one of the last open doors in a half-empty place. The same article has a name for that last picture, a “dead mall”, which is the kind of phrase that makes a lease clause feel suddenly personal.
Co-tenancy clauses come in two flavors:
- Opening co-tenancy. You do not have to open (or pay full rent) until certain other stores, or a certain number of them, are open. This is common in a center still being built or renovated.
- Operating co-tenancy. Once you are open, you only owe full rent while the named stores or the minimum occupancy stay in place (Cox Castle, a retail-law firm’s guide to the main co-tenancy issues).
And the trigger usually takes one of two shapes. It can name a “key” tenant (the grocery store, the department store), or it can set an occupancy threshold, a percentage of the center that must be open. Here is the threshold version with invented numbers. Suppose a center has 20 units and the clause requires 75 percent to be open. That is 15 units. If 14 are open, the center is at 70 percent and the clause is triggered. It is arithmetic, which is the nicest thing a lease can be.
Expect the landlord to ask for two things in return. One is a replacement tenant rule: the clause counts as satisfied if a comparable store opens in the departed one’s place. The other is a cure period: time to find that replacement before your remedy starts. Both are reasonable in principle. What matters is the word “comparable” and the number of days, so make sure both are written down.
What Is an Exclusive Use Clause, and How Does It Differ From a Use Clause?
A use clause limits you. It says what you may do in your space, and we cover how narrow ones bite in our commercial lease red flags guide. An exclusive use clause is its mirror image. It limits the landlord, and through the landlord, your neighbors: it says that, while you operate, the landlord will not lease other space in the center to your competitor or to a business you would find undesirable (American Bar Association, Probate & Property, July/August 2024).
That article adds a point worth reading twice. Small businesses often run on thin margins, so a new competitor, especially a big-box store or national chain, can leave them unable to make their rent. The same article notes that small tenants frequently have less bargaining power and often have to give ground on the carve-outs the landlord asks for. That is not a reason to skip the clause. It is a reason to know which carve-outs matter.
One more feature: most exclusives look forward. They stop new leases. A law firm’s retail blog suggests tenants also ask for a statement from the landlord that no current lease already breaks the exclusive, and a promise not to amend an existing lease, or approve an assignment or sublease, in a way that would (Hunton Andrews Kurth, Exclusive Use Provisions in Commercial Leases). Otherwise your rival may already be on the way in with a signed lease.
How Do You Word an Exclusive So It Protects You Without Locking Up the Center?
This is where most of the value is, and where most clauses go wrong. There are three ways to draft the protected category (ABA article):
- A named list. “The landlord will not lease to X, Y or Z.” Precise, but anyone not on the list is fair game.
- A category. “No business selling coffee.” Broader, but the broader it gets, the more room there is for an argument.
- Both. A short list of named rivals plus a category with a measure attached.
The measure is the trick. The ABA article’s example is a coffee shop that wants to keep other coffee houses out but not every restaurant that happens to serve coffee, so the clause bars any business that gets more than 15 percent of its revenue from coffee. Without a number like that, “sells coffee” catches the sandwich shop, the bakery and the diner, and a clause that grabs that much tends to start fights. The same piece reports that when a dispute reaches a courtroom, judges read exclusives narrowly and may pare back a category that is too broad.
Two sourced warnings, retold as hypotheticals. Picture a cookie shop whose exclusive bars “baked goods”. It has just given itself a claim against a bread bakery two doors down, whether or not that was anyone’s plan. And one law firm’s retail blog reports a lease dispute that ended with a judge ruling that tacos and burritos count as sandwiches under a use restriction, so if your exclusive says “sandwiches”, expect an argument about the taco truck. Humor aside, the lesson is serious: write the category in words a stranger could apply on a Tuesday.
Here is an original sample to adapt. It is an illustration, not a form to paste in blind, and every number is a placeholder to negotiate.
Tenant’s Exclusive. While Tenant is open and operating in the Premises, Landlord will not lease, or permit the use of, any other space in the Center to a business that gets more than 15 percent of its gross revenue from the sale of coffee, espresso drinks or whole-bean coffee. This restriction does not apply to a lease in effect on the date of this Lease or its renewal. Landlord will state this restriction in every new lease in the Center, and promises that no lease in effect today breaks it.
Why each piece is there. “While Tenant is open and operating” ties the exclusive to the shop it protects, which is easier for a landlord to accept. The percentage keeps the category from spreading to every kitchen in the center. The carve-out for leases already signed (and their renewals) is the one a landlord will insist on, and the ABA article lists renewals and relocations as things to address. The last sentence copies the two protections described above.
What Happens When the Landlord Breaks the Promise?
Here is the part that decides whether the clause is worth the paper. A promise with no remedy is a hope. Without remedies written into the lease, you have to file a lawsuit and ask a court to decide what the right damages and remedies are (Hunton). That is slow, expensive and uncertain, and proving what lost sales a new competitor caused is hard even when you are right.
So the question is not “do I have an exclusive?” It is “what happens, automatically, if it is broken?” The usual menu, drawn from the same two sources:
- Rent reduction for as long as the violation lasts, by a set percentage or all the way to zero. It is typically the base rent that goes down. Additional rent such as CAM charges and property taxes usually does not, so read our CAM charges guide to know what that second bill is.
- A right to terminate if the violation goes on for an extended period.
- Liquidated damages, a pre-agreed sum or formula, so that you do not have to prove lost profits. Courts do not enforce one that is really a punishment (Cornell Legal Information Institute).
- An injunction, a court order to stop the violation, which is a lawsuit again.
A worked example with invented numbers. Suppose base rent is $4,000 a month and CAM and taxes add $900. Your lease cuts base rent by 50 percent while an exclusive violation continues. During those months you pay $2,000 plus $900, so $2,900 instead of $4,900. That is $2,000 a month back in your pocket, or $8,000 over a four-month violation. Not nothing, and not the whole bill either.
Co-tenancy works the same way, with one drafting point worth knowing. A bar-section article describing the law in California explains that a rent cut that looks like a penalty may be struck down, while a lease that sets two rents, one when the center is full and a lower one when it is not, tends to be treated as a valid agreement; a right to terminate is also likely to hold up. Other states may see it differently, so this is a question for a local attorney. The practical lesson for you is to write the lower rent into the lease as a figure or formula, not as a vague “equitable reduction”.
Here is an original sample co-tenancy clause in that shape, again as an illustration.
Co-Tenancy. The Center is “Open” when [Named Anchor], or a replacement of comparable size and quality, and at least 75 percent of the leasable space in the Center are open and operating. If the Center is not Open for 90 days in a row, then for as long as it remains not Open, Tenant will pay Alternative Rent equal to 50 percent of Base Rent in place of Base Rent. If the Center is still not Open after 12 months, Tenant may end this Lease on 30 days’ written notice.
Both remedies come with a catch the landlord will raise, so the next section matters.
What Will the Landlord Ask for in Return?
Landlords do not love either clause. A co-tenancy clause makes them answer for other tenants’ decisions, and an exclusive shrinks the pool of people they can rent to. The Cox Castle guide lists the conditions they usually attach to a co-tenancy remedy:
- you are not in default on the lease
- you are open and operating when the violation happens
- the right belongs only to the original tenant who signed
- the remedy you choose is your only remedy for that violation
Exclusives bring their own landlord request, the “rogue tenant” exception. A rogue tenant is one that starts selling something prohibited without permission. The landlord’s ask is that you cannot use your remedies while the landlord is making commercially reasonable efforts to stop them (ABA article). That is fair in principle. What deserves negotiation is what counts as “diligent” and for how long.
There are also two clauses that run the other way, and a landlord who grants you protection often wants these in exchange:
- A radius restriction bars you from opening a similar business within a stated distance of the premises. The ABA article says landlords seek it most when your rent includes a percentage of your sales, and suggests that drafters keep it to a few miles outside cities and no more than a mile within them. Ask how it applies if you later add a second location.
- A requirement to stay open. Co-tenancy’s mirror image: the landlord wants to know you will not close your shop and leave a dark window in the middle of the center.
If you change your business, an exclusive may not follow you. The ABA article notes that an exclusive can be waived when the tenant stops using the space as originally intended, or by inaction over time, so tell your lawyer before you pivot from coffee to catering.
How Much of This Can a Small Tenant Realistically Get?
Honestly, it depends on your leverage, and a smaller tenant has less than a national chain. An older guide from a retail-law firm says national and large regional tenants are generally better placed to win co-tenancy protection than small shop tenants, though it also notes some smaller tenants were asking for it and sometimes getting it (Cox Castle). Vacant space costs a landlord money, which helps a little, but do not assume you will win every ask.
So prioritize. As drafting advice, not a promise of what you will get:
- Decide which neighbor your sales depend on. If it is a competitor, ask for an exclusive. If it is an anchor that brings the foot traffic, ask for co-tenancy. Asking for both in full is a good way to get neither.
- Insist the remedy is written in, as numbers. A rent cut that applies by itself beats a right to sue.
- Define the category in words and a percentage, as in the coffee example.
- Ask at the letter-of-intent stage. Our lease red flags guide says most of these points are negotiable then and effectively fixed once the lease is signed.
- Record the exclusive. The ABA article suggests including it in the recorded memorandum of lease, so future tenants have formal notice of it.
If you are going to spend money on a lawyer anywhere in a commercial lease, this is a good place. Wording is the whole game, and the stakes are years of rent. Our triple net lease guide covers the rest of the bill that comes with the space.
It is a clause in a multi-tenant lease that ties your rent or your duty to open or stay open to who else is operating in the center. If named stores or a minimum share of the center are missing, you can usually pay reduced rent, delay opening or end the lease, depending on what the clause says.
It is a clause that stops the landlord from leasing other space in the center to a business that competes with you, as the lease defines it. It protects you only as far as the wording of the protected category and the remedy for a breach reach.
A co-tenancy clause is about who must be there: it cuts your rent if key neighbors leave. An exclusive use clause is about who may not be there: it keeps a competitor out. One protects your foot traffic and the other protects your market, and a lease can have either, both or neither.
Read your lease for a co-tenancy clause and check its trigger, its cure period and any notice you must give. If there is none, you have no automatic rent relief and are left to negotiate with the landlord. Because the remedy depends entirely on the wording, a licensed attorney should read it before you act.
It is a clause that bars you from opening a similar business within a set distance of the leased space while the lease runs. Landlords ask for it most often when part of your rent is a percentage of your sales. Check the distance, where it is measured from, and whether it reaches your affiliates.
The Bottom Line on Co-Tenancy and Exclusive Use Clauses
The walls are not the whole lease. A co-tenancy clause tells you what your rent does when the neighbors you were counting on leave. An exclusive use clause tells you who the landlord may not rent to next door. Both are only as good as three things: the words that define the neighbors, the numbers that define the remedy, and your own notes on the date the clock starts. Get those three onto paper before you sign, and a missing anchor or a new rival becomes a rent adjustment instead of a crisis.
This article is general information, not legal advice, and does not create an attorney-client relationship. Contract and property law vary by state and by situation. For a commercial lease, have a licensed attorney review the document.