Robert Eisenberg: That‘s why a good co-location clause has what the Biz calls the Sunset clause. And it actually means that if the failure of the tenancy agreement is not cured at some point, the tenant must make a decision. You must either resign and leave, or return to pay full rent and reopen. The idea is that the appearance, either this loss of rental housing causes suffering for the tenant, they suffer from the loss of lost turnover, in this case, look, it does not work. You can stop. Or yes, there is a tenant error, but it actually has no effect or significant impact on the tenant as long as they are happy enough to stay. You have nothing against the situation, even with the rental contract. “It may be an informal situation, but at the end of the day, when you sign a contract with an owner, you have an agreement with them, and now you are responsible for that agreement.” Robert Eisenberg: Let me start with the tenants, because I think it‘s a little more obvious. Co-tenancies are most useful in two main contexts. The first is for a new development or a new shopping centre. And with the co-tenancies here make sure you are the tenant are not the first or only tenant who stays here. Suppose the owner has trouble renting other parts of the centre, or they decide they don‘t want to build as much as they did originally. We are now seeing a lot of them, where construction costs have become very high.
The owners decide, “Maybe I don‘t want to build as much as I thought at first” or other tenants say, “Maybe we‘re not economically able to open our stores.” So, if you have a rental clause in your rental agreement, you don‘t need to open and be the only open tenant in a development where no one attracts other traffic. Maybe it‘s not as big or as much of a goal as you thought. In these situations, we usually see co-tenancies of openness, because if everyone is open, the idea is that now everyone is open, the risk is more minimal for me. Robert Eisenberg: So you can, in a way, think twice in your development, and I have done it personally, that is where we have tenants who come to ask for co-location clauses, but we have an anchor that is not required to work all the time, but that has an obligation to open for a day. Instead of saying, “It‘s open,” I say, “This tenant is open to stores.” So there are little tricks and little ways around that, but at the end of the day, it‘s about the distribution of risk between the landlord and the tenant. Robert Eisenberg: But there are other more creative remedies you can have. And again, anything under the sun that you can imagine could be a co-tenancy remedy. One of the ones I‘ve seen is where a tenant works below a fixed minimum wage, they say, “Look, if there‘s a lease, you and I will share the risk here, owner.
I won‘t pay my fixed minimum rent anymore. Instead, I will only pay you a percentage of rent. They will therefore receive a percentage of my turnover. The idea of being there, look, there is a tenant error. I guess there will be a decrease in traffic to the center. There will be a drop in my sales, so I will only pay you a percentage of what I actually sell. You will not have a guaranteed rent. We‘ll share the wounded together. Robert Eisenberg: So that‘s my second piece of advice.
My third advice is to be clear about the schedules. The first sub-point is that of healing periods. If a lease default occurs, the tenants of course want their rights to apply as quickly as possible, but a landlord says, “No, no, no, no.