Exclusive use clauses and co-tenancy clauses are the two provisions that distinguish retail leases from other commercial leases. For DFW retail landlords, exclusive use and co-tenancy clauses are central to leasing in the metro’s stronger retail sub-markets (Plano, Frisco, Southlake, Uptown), where competing tenant interests, anchor stability, and operating-covenant compliance shape leasing decisions and post-lease disputes. An exclusive use clause prevents the landlord from leasing to direct competitors of the tenant. A co-tenancy clause makes the tenant’s obligations contingent on the presence of other tenants in the property. Together, they protect retail tenants from the most fundamental risks they face: direct competition next door and decline of the property’s broader merchandising mix. Drafting these clauses properly is central to retail lease negotiation, and disputes about their interpretation and enforcement are common. This page goes deeper into both clauses than the broader Retail Leasing page, with focus on drafting, triggers, remedies, and the practical issues that come up.
Exclusive use clauses: purpose
A retail exclusive use clause grants the tenant exclusive rights to a specific use category at the property. The purpose is to protect the tenant’s investment by ensuring the landlord doesn’t add competing tenants that would dilute the tenant’s market position.
Common scenarios where exclusive use is critical:
A coffee shop in a shopping center wants exclusivity to prevent the landlord from adding another coffee shop nearby.
A clothing retailer wants exclusivity in its specific category (women’s apparel, children’s apparel, etc.).
A restaurant wants exclusivity in its specific cuisine or category.
A specialty service business (dry cleaner, nail salon, etc.) wants protection against direct competitors.
For tenants making substantial investment in build-out and inventory, exclusive use is often essential to the deal.
Defining the scope of exclusivity
The scope of an exclusive use clause is heavily negotiated:
Specific products or services. What exactly is covered. “Coffee” is broader than “specialty coffee drinks.” “Athletic shoes” is narrower than “footwear.”
Primary vs. incidental. Does the exclusive use clause cover only primary activities (the tenant whose primary business is coffee) or also incidental sales (a restaurant that also serves coffee)?
Geographic scope. The entire property? A specific area? Specific units?
Anchor tenant exceptions. Anchor tenants typically have broader use rights than inline tenants. Exclusive use clauses often have specific carve-outs for anchor tenants.
Existing tenant exceptions. Tenants already in the property when the exclusive use clause is signed are typically excluded from the exclusivity.
Future tenant exceptions. Some exclusive use clauses include carve-outs for specific future tenants (e.g., national chains that might want to enter the property).
Drafting the scope precisely prevents most disputes. Vague scope produces years of litigation about what’s covered.
Common exclusive use disputes
Incidental sales. The new tenant’s primary business is not the protected category, but they sell some products in the protected category. Is that within the exclusivity?
Category overlap. The new tenant’s category is similar to but not identical to the protected category. Is it within the exclusivity?
Product evolution. The protected tenant’s business evolves (e.g., coffee shop adds food service). Does the original exclusive use clause still cover the expanded business?
Property changes. The landlord adds a new building, expands the property, or otherwise changes the property’s footprint. Does exclusivity extend to new areas?
Anchor tenant changes. The anchor tenant changes business model in a way that might overlap with the protected category.
Online and delivery. The new tenant’s business includes online sales or delivery from the property. Does exclusivity reach these?
Remedies for exclusive use violations
Common remedies for exclusive use violations:
Specific performance: court order requiring the landlord to terminate the violating lease or otherwise remedy the violation.
Damages: lost profits, rent reduction, or other economic damages.
Lease termination: the protected tenant can terminate the lease.
Rent reduction: specific reduction tied to the impact of the violation.
Specific provisions in the lease (sometimes called “self-help” or “automatic” remedies). Some exclusive use clauses include automatic remedies (rent goes to half until the landlord cures, etc.).
The remedy depends on the lease’s specific provisions. Without specific remedies, the protected tenant typically must prove damages through litigation.
Co-tenancy clauses: opening vs. operating
Two main types of co-tenancy:
Opening co-tenancy. The tenant is not obligated to open for business until specified other tenants are open. Common for stores in shopping centers that depend on anchor tenant presence.
Operating co-tenancy. The tenant has rights (typically rent reduction or early termination) if specified other tenants close or if overall occupancy drops below specified thresholds.
Opening co-tenancy is often resolved at lease signing or in the early lease period. Once the property is fully operating, the opening co-tenancy is typically satisfied.
Operating co-tenancy is the ongoing protection. It activates when something goes wrong with the property’s broader merchandising mix.
Drafting co-tenancy triggers
Co-tenancy triggers are heavily negotiated:
Named anchor tenants. Specific tenants whose presence is required (e.g., “Anchor Tenant A and at least 80% occupancy of inline space”).
Anchor categories. Categories of anchors required (e.g., “a national grocery anchor and a national pharmacy anchor”).
Occupancy thresholds. Minimum percentage of inline space occupied (e.g., 70%, 80%).
Tenant categories. Specific categories required (e.g., “at least three national chain restaurants”).
Brand strength. Some co-tenancy clauses require specific brand strength (e.g., “national tenants of equal or greater brand quality”).
Cure period. The landlord typically has a specified period (often 90-180 days, sometimes longer) to cure the co-tenancy failure before tenant rights vest.
Triggers should be specific enough to evaluate objectively but flexible enough to handle real-world property dynamics.
Common co-tenancy disputes
Replacement tenant adequacy. The original anchor leaves; a new tenant comes in but isn’t equivalent. Is the co-tenancy satisfied?
Temporary vs. permanent closure. An anchor tenant temporarily closes for renovation. Does that trigger the co-tenancy?
Cure period adequacy. The landlord claims to be in the process of curing; the tenant claims the cure period has expired.
Categorical vs. specific. The lease requires “a national grocery anchor”; a smaller chain or regional player tries to fill the role.
Property changes. The property’s configuration changes; does the co-tenancy still apply to the changed property?
Multiple co-tenancy failures. Multiple co-tenancy triggers may activate simultaneously; remedies and cure periods may conflict.
Co-tenancy remedies
Common co-tenancy remedies:
Rent reduction. The tenant pays reduced rent during the co-tenancy failure period (often substituting alternative rent, percentage rent only, or some other reduction).
Early termination. The tenant can terminate the lease after the co-tenancy failure persists for a specified period.
Damage claims based on harm to business.
Specific operational adjustments. Reduced hours, reduced services, alternative use of space.
Reduced or waived percentage rent. If the lease has percentage rent, the percentage rent calculation may be adjusted during co-tenancy failure.
The lease’s specific remedies determine what’s available. Negotiating specific, predictable remedies is essential.
Anchor tenant interaction
Co-tenancy clauses interact with anchor tenant leases:
Anchor lease term. Co-tenancy depends on the anchor’s presence; if the anchor’s lease ends, co-tenancy issues arise.
Anchor lease renewal. Anchor renewals are often heavily negotiated as the anchor approaches lease end. Renewal terms affect inline tenants through co-tenancy.
Anchor exit rights. Some anchor leases include kick-out rights or early termination rights. If the anchor exits, co-tenancy is triggered for inline tenants.
Successor anchor. Replacement of one anchor with another may or may not satisfy co-tenancy depending on the lease’s specific provisions.
Anchor closure during operation. An anchor that closes its store but continues paying rent technically may not trigger co-tenancy (depending on the lease), but the practical impact on inline tenants is the same.
Practical playbook
For tenants negotiating co-tenancy:
Specific named anchors. Specific named tenants are stronger than categorical descriptions.
Reasonable cure period. Long cure periods (e.g., 360 days) effectively neutralize co-tenancy. Negotiate reasonable periods.
Multiple triggers. Both anchor presence and overall occupancy thresholds.
Specific remedies. Predictable remedies (e.g., 50% rent reduction) better than damages-based remedies that require litigation.
Continuing operating tenant. The lease should clarify what happens to the tenant’s own continuous operation requirements during co-tenancy failure.
For landlords:
Specific cure rights. The landlord should have clear paths to cure co-tenancy failures.
Reasonable triggers. Avoid triggers tied to events the landlord can’t control.
Tenant cooperation. Co-tenancy disputes may require coordinated action between the landlord and the tenant.
Limited damage exposure. Damages-based remedies should have caps or specific calculations.
Anchor tenant alignment. Anchor lease terms should align with inline co-tenancy requirements.
Common drafting mistakes
Vague exclusive use scope. Imprecise scope creates years of litigation.
Vague co-tenancy triggers. Same problem.
Inadequate remedies. Without specific remedies, the affected tenant must litigate damages.
Cure periods too long. Cure periods that effectively neutralize the protection.
Categorical exclusions without specifics. “Anchor tenant carve-out” without specifying what counts as anchor.
Missing operational interaction. Co-tenancy and continuous operation requirements should align.
Missing temporary closure provisions. Renovations, repairs, and similar temporary closures should be addressed.
Online and delivery omissions. Modern retail includes substantial online and delivery business; lease provisions should address.
Frequently Asked Questions
What is an exclusive use clause?
A retail lease clause granting the tenant exclusive rights to a specific use category at the property. Prevents the landlord from leasing to direct competitors.
What is a co-tenancy clause?
A retail lease clause making the tenant's obligations contingent on the presence of other tenants. Two main types: opening co-tenancy (tenant doesn't have to open until specified others are open) and operating co-tenancy (tenant has rights if specified others close or occupancy drops).
How specifically should exclusive use scope be drafted?
Very specifically. Vague scope produces years of litigation. Specific products, services, geographic boundaries, primary vs. incidental coverage, and specific exceptions (anchors, existing tenants, etc.) all should be defined.
What are common exclusive use disputes?
Incidental sales (new tenant's primary business isn't the protected category but sells some products in it), category overlap, product evolution, property changes, anchor tenant changes, online and delivery activities.
What are common co-tenancy triggers?
Named anchor tenants whose departure triggers tenant rights, anchor categories that must be present, occupancy thresholds (e.g., 80% of inline space), tenant categories (e.g., at least three national chain restaurants), brand strength.
What's a typical cure period in a co-tenancy clause?
Often 90-180 days, sometimes longer. The cure period gives the landlord time to replace departed tenants or otherwise address the co-tenancy failure before tenant rights vest. Cure periods should be reasonable but not so long they neutralize the protection.
What are common co-tenancy remedies?
Rent reduction (often 50% or substitution of percentage rent only), early termination after extended failure, damage claims, operational adjustments, percentage rent waiver. Specific remedies in the lease are stronger than damages-based remedies.
Can the tenant terminate based on co-tenancy failure?
Yes, if the lease provides. Operating co-tenancy clauses often include termination rights after cure period failure. Tenants typically must give specific notice and may pay specified termination fees.
How does co-tenancy interact with anchor tenants?
Anchor tenants are typically the foundation of co-tenancy. Anchor lease terms (term length, renewal options, exit rights) affect inline tenant co-tenancy protection. Anchor changes are the most common co-tenancy trigger.
What about online and delivery business?
Modern retail includes substantial online and delivery business. Exclusive use and co-tenancy clauses should address whether these activities are covered. Without specific provisions, ambiguity persists.
Can a Texas landlord violate exclusive use to lease to an anchor?
Depends on the lease. Some exclusive use clauses include exceptions for anchor tenants. Others don't. If the lease lacks an exception, leasing to a competing anchor may violate the exclusive use clause and trigger remedies.
What's the most common exclusive use or co-tenancy mistake?
Vague drafting. Imprecise scope of exclusive use, vague co-tenancy triggers, and inadequate remedies all produce years of disputes. Specific drafting prevents most disputes. Take the time to draft these provisions precisely; they're the most important provisions in retail leases.