A clause commonly written in retail leases that requires a tenant to continuously operate at a property for the entire term of the lease. As anchor tenants may act as a demand driver for a retail center, landlords may enforce this clause to minimize the risk of a major tenant “going-dark.” In situations that a continuous operation clause is not included in the lease terms, a non-profitable tenant may leave the premises, and the center may suffer as a whole. Smaller tenants may negotiate rent abatements to make up for the loss in traffic due to the anchor tenant ceasing operation.
For example, assume a major grocery store has begun to operate at a loss in a shopping center, and has requested to “go-dark.” Knowing that the grocery store may drive a substantial amount of people to the area, the landlord may have negotiated a continuous operation clause that requires that the tenant maintain full operations. Although the grocery store may not be profitable, staying open continues to drive traffic and traffic helps to maintain the value of the overall retail center.
Without a continuous operation clause in the lease, the landlord would have to file a lawsuit against the tenant to enforce the condition. A court would then have to decide the state of a tenant being a continuous operation.
Having those terms in the lease makes things much simpler for the landlord and sets expectations for the tenant. As well, by signing the lease, the tenant agrees to the continuous operation clause.
Being explicit about the conditions to meet continuous operation will make the covenant more enforceable by the landlord. Some conditions may include operating hours, types of merchandise available, and inventory stock. Of course, the landlord wouldn’t want to determine conditions alone. The lease is negotiable, and the tenant should always be involved in any negotiations.
The Investor's Guidebook To Net Lease
Learn More About Net Lease Investments.
