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Enforceability of Cotenancy Clauses: Remedy or Penalty?

Contenancy clauses are common in retail leases. Their purpose is to provide tenants with a remedy in the event that a cotenancy condition is not met, such as when a specified major tenant in a shopping center fails to open or a certain percentage of occupancy is not achieved at the remainder of the shopping center. Remedies for a cotenancy failure range from being released from the obligation to open, to rent abatement, or lease termination. Recently, there have been a number of cases in which landlords have challenged remedies for alleged cotenancy failures as unenforceable penalities. Often, the challenged leases are antiquated and negotiated in a vacuum long before tenants make use of the remedies or landlords understand the impact they might have on the shopping center.

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