How Do I Negotiate Exclusive-Use and Co-Tenancy Clauses?

What each clause actually protects

These two clauses solve different problems, and confusing them is the fastest way to leave money on the table. An exclusive-use clause protects your category: it stops the landlord from putting a direct competitor in the same center and splitting your sales. If you run the only smoothie shop in a strip mall, an exclusive keeps a second smoothie operator out of the building, the outparcels, and the pad sites — everywhere the landlord controls.

A co-tenancy clause protects your foot traffic. Retail tenants in a multi-tenant center pay a premium rent because they are buying access to the crowd the anchor and neighboring stores generate. When the grocery or big-box anchor goes dark, that crowd evaporates, but under a standard lease your rent does not. Co-tenancy fixes that mismatch by tying your obligations to the center actually being occupied and operating. One clause guards the demand you capture; the other guards the demand that shows up at all. A well-negotiated pair can be the difference between surviving a center's decline and being trapped paying full rent into an empty parking lot for the balance of a ten-year term.

Landlords rarely offer either voluntarily. Both reduce their leasing flexibility and their rent certainty, so the default lease draft omits them. You have to ask, and you have to ask early — the right time is the letter of intent, not the third round of redlines, so the concession is priced into the deal from the start.

Drafting an exclusive-use clause that holds up

An exclusive is only as strong as its definition, and this is where most tenants lose. Define your protected category by products and services and share of sales, never by business type or tenant name. "No other tenant may operate a coffee shop" is weak — a competitor calls itself a bakery that happens to serve coffee and slips right through. Stronger: "Landlord shall not lease to any tenant deriving more than 10% of gross sales from espresso-based beverages." That language attaches to what a store actually sells, not what it calls itself, so it survives creative labeling.

Insist the exclusive covers the entire center, including outparcels and pad sites, not just the inline shops. A competitor in a freestanding building at the entrance hurts you as much as one three doors down. Push for the exclusive to bind not only new leases but renewals, assignments, and subleases of existing tenants, and to survive a change in center ownership.

Expect standard landlord carve-outs and negotiate each one down rather than accepting the block:

• Existing tenants grandfathered in — reasonable, but get them named specifically, never "and similar uses."
• Anchor tenants exempt — often a grocery that sells some of your category incidentally; try to cap the exemption to incidental sales below a set percentage.
• Large tenants above a certain square footage — negotiate the threshold.

The carve-out list must be enumerated in the lease. "And other uses the landlord deems appropriate" hands the landlord a way to defeat the exclusive at will, and a vague exclusive is worse than none because it gives you false comfort. Spend the legal dollars to make the definition airtight — this is precisely the language a competent real estate attorney earns their fee on.

Building a co-tenancy clause with real triggers

Negotiate two separate co-tenancy tests, because a center can be full on opening day and hollow out by year three, and landlords will try to give you only one.

Opening co-tenancy means you are not obligated to open — or to start paying rent — until the named anchor and a minimum percentage of inline space are open and operating. This protects you from opening into a ghost town and paying full rent while you wait for neighbors that may never arrive.

Ongoing co-tenancy means your remedies kick in if occupancy later falls. If the anchor goes dark or occupancy drops below your threshold for more than a stated period (commonly 30 to 60 continuous days, so a brief remodel does not trip it), your rent converts to alternate rent.

Define every trigger with hard numbers and named parties:

• Named anchor(s): list the specific anchor by name — the grocery or big-box that actually drives your traffic. "An anchor of comparable quality" is a loophole; landlords backfill a national grocery with a discount liquidator and call the condition cured.
• Occupancy threshold: commonly occupancy below 70% to 80% of gross leasable area, OR loss of the named anchor, whichever comes first.
• "Operating" defined precisely: a tenant paying rent but dark — vacant and not transacting — must count as *not* operating for your purposes. Tie the trigger to stores being physically open, not merely under lease, because a paying-but-empty box still kills your foot traffic.

Without numeric triggers, the clause dissolves into argument the moment you try to invoke it, and the tenant almost always loses a vague dispute.

Alternate rent, cure periods, and the gap most tenants miss

Once a co-tenancy trigger hits, what you pay during the gap is the whole point. Alternate rent is commonly structured as 50% of base rent, or as the lesser of base rent or a percentage of gross sales (often in the 5% to 8% range). The percentage-of-sales version is friendlier to a struggling tenant, because a dead center produces low sales and therefore low rent — the relief scales with the pain.

Watch the interaction with percentage rent. If your lease already charges percentage rent on sales above a breakpoint, your co-tenancy remedy should suspend or reduce that too. Otherwise a dying center still costs you on the upside while your neighbors are boarded up — you get relief on base rent but keep paying on sales.

Set a realistic cure period — commonly 9 to 12 months — during which you pay alternate rent while the landlord works to restore co-tenancy. If the landlord fails to bring occupancy or the anchor back by the deadline, your termination right vests. Insist any *replacement* anchor be of comparable quality and customer draw, not merely comparable square footage.

The frequently missed point: cap how long you can sit on alternate rent. Landlords increasingly demand that if reduced rent runs longer than 12 to 24 months, *either party* can terminate — which protects them from a tenant happily paying half-rent indefinitely, but can also let a landlord evict you from a location you have decided to tough out. Negotiate that termination right to be *yours alone*, or push the clock out as far as you can so the choice to stay or go stays with you.

Remedies that give both clauses teeth

A clause with no remedy is decoration. Stack the consequences so the landlord is motivated to keep the center full and competitor-free, and so the burden of acting falls on them:

• Step one — automatic rent reduction. Rent drops to alternate rent the moment the trigger hits, with no need to sue first.
• Step two — continued reduction through the cure period. Reduced rent persists for the full 9-to-12-month window.
• Step three — termination. If the trigger is not cured, you may terminate with no penalty, and in stronger deals recover your unamortized tenant improvements so a landlord failure does not strand your buildout investment.
• Step four — damages for an exclusive breach. If the landlord lets a competitor in, you want rent abatement plus, in strong leases, the right to injunctive relief to force the competitor out — and in some deals, the offending tenant's sales as a measure of damages.

Push for the reductions to be self-executing: you simply start paying less, and the landlord must sue you to dispute it. That flips the leverage. Under a self-help remedy, the burden and cost of litigation sit on the party who failed the condition — the landlord — rather than on you having to fund a lawsuit just to get relief you already earned.

Leverage, timing, and what to trade

Your power on both clauses peaks *before* you sign the letter of intent, not during lease redlines, so raise them in the LOI where they get priced into the deal. The strongest leverage belongs to tenants the landlord wants badly: a recognizable brand, a strong balance sheet or personal guaranty, a long term, or a use that pulls traffic for the whole center. If you bring foot traffic, frame your exclusive as protecting *their* asset — a busy tenant that anchors a corner — not just your own revenue.

Be ready to trade, because landlords resist exclusives for the leasing flexibility they surrender. Offer concessions that cost you little: a slightly higher percentage-rent breakpoint, a shorter exclusive window (first five years only, then it sunsets), or a narrow, named carve-out for the anchor's incidental sales. On co-tenancy, soften the landlord's risk by agreeing the remedy is *reduced rent first, termination only as a last resort* after a long cure — you keep the protection while giving the landlord room to fix the problem before losing you entirely.

Get everything inside the recorded lease document — never a side letter, never a verbal assurance from a leasing agent. In a center where ownership routinely changes hands, a promise that is not in the lease effectively does not exist, because a clause you cannot enforce against the *next* landlord is no protection at all. A tenant-rep broker earns their entire fee on these two clauses: the dollars saved when an anchor closes routinely exceed the cost of the whole lease negotiation many times over.

Common mistakes that gut these clauses

• Accepting "comparable anchor" language. Always name the anchor. A backfilled dollar store is not the grocery that drew your customers, and "comparable" is decided in the landlord's favor.
• Vague exclusive categories. "Restaurant" or "apparel" invites a competitor to claim a different label. Tie the exclusive to a percentage of sales from named products.
• No termination backstop. A rent reduction alone can trap you in a dying center for years. Always negotiate a clean walk-away right.
• Ignoring the percentage-rent interaction. If co-tenancy relief only touches base rent, a dead center still taxes your good months.
• Forgetting the buildout. When you can terminate, fight to recover unamortized tenant improvements so a landlord failure does not eat your per-square-foot investment.
• Trusting a side letter. If it is not in the recorded lease, it will not bind the buyer when the center sells.

Related questions

Does an exclusive-use clause cover the whole shopping center or just my unit?

It covers only the property the landlord controls, and only as far as you draft it. Insist the exclusive reach inline shops, outparcels, and pad sites. Anything the landlord does not own — a neighboring parcel under separate ownership — cannot be bound by your lease.

What is alternate rent under a co-tenancy clause?

Alternate rent is the reduced rent you pay when a co-tenancy trigger is active — commonly 50% of base rent, or the lesser of base rent or a set percentage of gross sales. It applies through the cure period, after which your termination right typically vests if the condition is not restored.

Can a small or first-time tenant win these clauses?

Often yes, especially in a center still leasing up that wants your category. Landlords are most flexible before they sign you, so raise both at the letter-of-intent stage. A narrow, clearly defined use is easier for a landlord to grant than a sprawling one.

How long should the landlord's cure period be?

Commonly 9 to 12 months. Long enough that the landlord can realistically re-tenant an anchor space, short enough that you are not stranded indefinitely. During the cure you pay alternate rent; if the landlord misses the deadline, your termination right should vest automatically.

What happens to these clauses when the center is sold?

Only what is written into the recorded lease travels to the new owner. Clauses in the lease document bind the buyer as a matter of the lease running with the land; side letters and verbal assurances generally do not. This is why every protection must live in the lease itself.

FAQ

What is the difference between an exclusive-use clause and a co-tenancy clause? An exclusive-use clause stops the landlord from leasing other center space to a competitor who sells what you sell. A co-tenancy clause ties your obligations to other tenants being open — typically a named anchor or a minimum percentage of occupied space. One protects your category; the other protects your foot traffic.

Can I get an exclusive-use clause as a small or first-time tenant? Often yes, especially in a center still leasing up that wants your category. Landlords are most flexible before they sign you, so raise it during letter-of-intent talks rather than after. The narrower and clearer your defined use, the easier it is for a landlord to agree.

What remedies should a co-tenancy clause include if the anchor closes? Reduced or percentage-based rent during the gap, the right to terminate after a stated cure period, or both. The key is defining the trigger precisely and giving the landlord a reasonable window to re-tenant before relief kicks in. Vague triggers are where these clauses fall apart in a dispute.

How specific should my defined use be? Specific enough to actually exclude direct competitors, but not so narrow that you box in your own future product lines. List your core categories and reasonable adjacencies you may add later. Over-define it and a competitor sells around the edges of your exclusive.

Will landlords push back on these clauses, and how do I respond? Yes — landlords resist anything that limits who they can lease to or that lowers rent. Expect carve-outs for existing tenants, incidental sales, and large anchors. Negotiate the carve-outs down rather than accepting the clause as-is, and trade on points that matter less to you to win the ones that protect your business.

What happens if the landlord violates an exclusive-use clause? That depends entirely on the remedy you negotiated into the lease — without one, an exclusive is hard to enforce. Strong clauses spell out consequences such as rent reduction, injunctive relief, or a termination right. Have a real estate attorney confirm the remedy language is enforceable in your jurisdiction before you sign.

Sources

• https://www.icsc.com/
• https://www.cbre.com/insights
• https://www.jll.com/en-us/insights
• https://www.cushmanwakefield.com/en/united-states/insights
• https://www.naiop.org/research-and-publications/
• https://www.irem.org/
• https://www.nolo.com/legal-encyclopedia/commercial-lease-clauses
• https://www.uslegal.com/

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