When a major anchor tenant leaves a shopping center — a Sears, a Target, a large grocery store — the impact on inline tenants extends beyond lost foot traffic. The lease language that governs what happens in this scenario is the co-tenancy clause, and most franchise tenants who have one understand only half of what it does.
The visible half is the co-tenancy remedy: rent reduction, a right to terminate, or some other relief when a named anchor goes dark. The less visible half is what happens to CAM. The two effects are related but separate, and a franchisee who exercises co-tenancy rent relief without also reviewing their CAM allocation may be leaving money on the table.
What a Co-Tenancy Clause Does
A co-tenancy clause is a contractual protection for tenants whose business depends partly on the presence of other tenants in the same property. The typical structure names one or more anchor tenants or specifies an occupancy threshold (e.g., "the Shopping Center must maintain 80% occupancy") and ties tenant rights to those conditions.
When the condition is not met — when an anchor vacates or occupancy falls below the threshold — the tenant typically has the right to:
- Pay a reduced rent (often a percentage rent floor rather than fixed base rent)
- Terminate the lease after a specified cure period if the condition is not remedied
- Both, in a tiered structure
The co-tenancy clause is negotiated. Not all franchisee leases in retail developments include one, and the scope of those that do varies significantly. Some protect only against a single named anchor; others set system-wide occupancy minimums. Some require the tenant to give notice and wait a cure period before exercising rights; others trigger automatically.
The CAM Dimension: The Denominator Problem
When an anchor tenant leaves, the denominator of the CAM pro-rata calculation may change. This depends on how the lease defines the denominator.
If the lease defines pro-rata share as the tenant's SF divided by total leasable area (a fixed number), the anchor's departure does not change the calculation. Your share is a fixed percentage.
If the lease defines pro-rata share as the tenant's SF divided by leased area or occupied area — or includes an occupancy adjustment — then the departure of a large anchor can meaningfully increase your pro-rata share. The math:
- Your store: 3,000 SF
- Total leasable area: 180,000 SF (including 60,000 SF anchor)
- Anchor vacates and space is dark
If denominator is total leasable area (fixed): your share = 3,000 / 180,000 = 1.67% If denominator adjusts to leased/occupied: your share = 3,000 / 120,000 = 2.50%
On a $400,000 annual CAM pool, that difference is $1,667 vs. $10,000 — a $3,333 annual increase from the same anchor departure that also reduced your foot traffic.
The anchor's departure triggered your co-tenancy rights. The same departure may also have quietly inflated your pro-rata share. Both effects need to be reviewed.
The Maintenance Cost Dimension
When an anchor vacates, the landlord's maintenance obligations for the common areas don't necessarily decrease. In some cases, they increase: a dark anchor space may require more active maintenance to prevent deterioration, security risks, or health and safety issues. These costs are incurred by the landlord as property owner.
The question is who pays for them. If the dark anchor space remains in the CAM pool (i.e., the landlord continues to include maintenance costs associated with the vacant space as pooled CAM), then the remaining tenants are effectively subsidizing upkeep for a space that produces no retail traffic for anyone. Whether this is permissible depends on how your lease defines the CAM pool and what it allows to be included.
Specific items to watch for after an anchor departure:
Security costs. If a dark anchor space requires enhanced security surveillance, those costs may flow into the CAM pool if security is a pooled expense.
HVAC and utilities for vacant space. If the landlord is conditioning or heating the vacant anchor space (sometimes required for building code reasons or to preserve the structure), and utilities are a pooled CAM expense, the cost allocation is worth examining.
Capital repairs. Anchor spaces that sit dark for extended periods sometimes require structural repairs when new tenants eventually arrive. If any of these are classified as routine maintenance rather than capital expenditure in the CAM reconciliation, they should be challenged.
Management fee on increased pool. If maintenance costs in the vacant space push the total CAM pool higher, and management fees are calculated as a percentage of the pool, the management fee increases proportionally. Confirm that the expanded fee is still within any cap your lease specifies.
How to Identify and Respond to Both Effects
When an anchor at your center announces a departure or vacancy:
Step 1: Review your denominator definition immediately. Pull the pro-rata share definition from your lease or lease abstract. Determine whether the denominator is fixed (total leasable area) or variable (leased or occupied area). If variable, calculate the impact of removing the anchor space.
Step 2: Review your co-tenancy clause. Confirm whether the departing tenant triggers co-tenancy rights. Note the cure period and the deadline for giving notice if you intend to exercise your rights.
Step 3: Track CAM changes beginning with the first full year post-departure. When the next reconciliation arrives, compare CAM per square foot to the prior year. A significant increase in the year following an anchor departure may reflect both the denominator shift and increased maintenance costs for the dark space.
Step 4: Request backup documentation. Use your audit rights to request the denominator breakdown and the expense ledger for the year of departure. Confirm whether the anchor space was included or excluded from the denominator, and whether any expenses are attributable to maintaining the dark space.
Co-Tenancy Remedies Don't Automatically Fix CAM
This is the gap many franchisees miss. A co-tenancy clause gives you a remedy for the revenue impact of losing an anchor. It does not automatically correct a CAM denominator error or exclude anchor-space maintenance costs from the CAM pool.
You may legitimately exercise co-tenancy rent relief and simultaneously have a CAM overcharge related to the same event. These are governed by different lease provisions and require separate attention.
Verification Action
Review your current lease for three things: (1) whether you have a co-tenancy clause and what triggers it, (2) how your pro-rata denominator is defined, and (3) whether your lease explicitly addresses how vacant anchor space is treated in the CAM pool. For any location adjacent to a dark or recently vacated anchor, calculate whether your pro-rata share may have increased since the departure and flag it for review before the current audit window closes.
Frequently Asked Questions
If my lease has a fixed denominator, do I have any CAM protection when an anchor leaves? A fixed denominator protects your pro-rata share percentage. You still have potential exposure from increased maintenance costs being passed through the CAM pool. Review the expense ledger after a departure to confirm no unusual maintenance costs for the dark space appeared.
How do I know if my co-tenancy clause covers the specific anchor that left? Co-tenancy clauses typically name anchors specifically (e.g., "The Center must include an operating [Anchor Name] store"), require a certain number of named tenants from a list, or set an occupancy threshold. Read the clause precisely. If the departing anchor is not named and occupancy stays above the threshold, your co-tenancy rights may not be triggered.
What is the cure period in a co-tenancy clause? A cure period is the length of time the landlord has to replace the anchor or restore the condition before the tenant's remedies activate. A typical cure period is 6-24 months. During the cure period, you typically cannot yet exercise termination rights but may be entitled to a rent reduction.
Does the anchor's departure affect my exclusivity clause? It depends on what the exclusivity clause protects and who the replacement tenant is. If the landlord brings in a replacement tenant operating a competing concept, your exclusivity clause may be triggered independent of co-tenancy. Review both clauses when any significant tenancy change occurs.
Should I notify my landlord before exercising co-tenancy rights? Yes. Most co-tenancy clauses require written notice before exercising any remedy. Exercising remedies without proper notice can be treated as a default by the tenant. Review the notice requirements in your clause and follow them precisely.
Run your reconciliation and lease through CAMAudit to check for these patterns against your specific lease terms.