Co-Tenancy Clauses in Ontario Commercial Leases

A co-tenancy clause is a provision found in some Ontario commercial leases — most often in shopping centres, power centres, and malls — that ties a tenant’s rent obligation, or its right to remain in the lease, to the presence of other tenants in the same property. The idea behind it is simple: a smaller retail tenant’s sales often depend heavily on the foot traffic generated by a large anchor store, or by the property being substantially occupied and active overall. If that foot traffic disappears because the anchor closes or too many other units sit vacant, the tenant’s business can suffer through no fault of its own.

A co-tenancy clause addresses that risk by defining a specific condition — usually the continued operation of one or more named anchor tenants, a minimum percentage of the centre’s gross leasable area being occupied, or both — and spelling out what happens if that condition isn’t met. This is a feature of the negotiated lease itself, not something imposed by the Commercial Tenancies Act or any other Ontario statute, so its presence and exact wording vary enormously from one lease to the next. For general background on how commercial leases work in Ontario more broadly, see our guide to commercial lease agreements in Ontario.

Co-tenancy clauses tend to surface most often in properties where a single large retailer — a grocery store, a department store, or a well-known big-box tenant — draws in the majority of the property’s foot traffic. Smaller tenants that lease nearby space are, in a very real sense, relying on that larger tenant’s drawing power to sustain their own sales. When a lease builds that reliance into an explicit, enforceable condition rather than leaving it as an unstated assumption, both sides at least know where they stand if the underlying assumption later changes.

Co-tenancy clauses are typically split into two distinct categories, each addressing a different point in the life of the lease. An opening co-tenancy condition applies before the tenant’s store opens for business. It commonly allows the tenant to delay its own opening — and the start of its rent obligation — if the named anchor hasn’t opened yet, or if the centre hasn’t reached the agreed occupancy threshold by the time the tenant’s space is ready.

An ongoing co-tenancy condition, by contrast, applies throughout the lease term after the tenant has already opened. It’s triggered if an anchor later closes, is not replaced within an agreed period, or if overall occupancy in the property later drops below the agreed threshold — for example, because several other tenants go out of business or don’t renew. Many leases that include co-tenancy protection include both types, since the risks they address arise at different stages and often call for different remedies.

The distinction also matters practically. A tenant relying on an opening co-tenancy condition is typically trying to avoid opening into a half-finished or under-leased property where its own grand opening would fall flat before the business even gets started. A tenant relying on an ongoing co-tenancy condition is typically trying to avoid being stuck paying full rent in a property that has deteriorated significantly since it originally signed — two related but genuinely different risks, which is part of why the two conditions are usually drafted, and negotiated, somewhat separately even within the same lease.

Where a clause is tied to overall occupancy rather than (or in addition to) a single named anchor, the threshold is usually expressed as a percentage of the centre’s gross leasable area that must be leased and open for business — commonly somewhere in the range of seventy to eighty-five percent, though this varies widely by property and by the tenant’s negotiating position. Some leases combine both approaches, requiring both a minimum occupancy percentage and the continued operation of one or more specifically named anchors.

The definition of a qualifying “anchor” also matters a great deal. A clause might name a specific retailer by name, require a tenant above a certain size, or simply require that the largest tenant in the centre remain open. A clause that’s vague about what counts as an anchor, or about how occupancy is calculated and measured over time, can lead to genuine disputes about whether the condition has actually been triggered — which is one reason this language tends to be drafted and negotiated carefully rather than borrowed loosely from a precedent lease.

It’s also worth asking how occupancy is actually measured over time — whether it’s checked at a single point (such as the anniversary of the lease), averaged over a rolling period, or tracked continuously. A clause that only checks occupancy once a year could miss a shorter but still damaging vacancy period, while continuous tracking is more protective of the tenant but harder for a landlord to administer and more likely to be resisted during negotiation.

When a co-tenancy condition fails, the lease’s remedy provisions determine what happens next, and these vary significantly. A common structure involves tiered relief: during an initial period of the shortfall, the tenant’s rent may drop to a reduced alternate rent — often calculated as a percentage of the tenant’s actual gross sales, or a lower fixed amount — rather than the full base rent plus additional rent that would otherwise apply.

If the shortfall continues beyond a defined cure period, giving the landlord time to re-lease vacant space or attract a replacement anchor, some leases escalate to giving the tenant a right to terminate the lease outright, sometimes with a requirement to give the landlord written notice and a further opportunity to cure before the termination becomes effective. The specific sequence, dollar amounts, and timeframes are all negotiated terms found in the clause itself, not a default rule that applies automatically.

From a landlord’s perspective, a co-tenancy clause shifts a meaningful amount of leasing risk onto the landlord, often tied to events that are only partly within the landlord’s control. An anchor tenant’s decision to close a location, or a wave of unrelated tenant bankruptcies, can trigger rent reductions or termination rights across several leases in the same property simultaneously — compounding the landlord’s losses right at the moment the property is already struggling with vacancy.

Landlords also worry about a cascading effect: if one anchor’s departure triggers co-tenancy relief for several smaller tenants at once, the resulting drop in rental income can make it harder to finance improvements or attract a replacement anchor in the first place, deepening the very vacancy problem the clause was meant to respond to. For this reason, landlords typically try to narrow these clauses as much as possible — limiting them to specific named anchors, requiring a longer cure period, or capping how long reduced rent can apply before reverting to full rent regardless of occupancy.

Lenders financing a commercial property can add another layer of resistance. A mortgage on a shopping centre is often underwritten based on projected rental income, and a lender may be uneasy about a financing structure where a chain reaction of co-tenancy triggers could suddenly reduce that income across several leases at once. Landlords sometimes point to this financing reality as a reason for keeping co-tenancy clauses as narrow as possible, even where a tenant’s request for broader protection seems reasonable on its own terms.

Because co-tenancy clauses aren’t standardized, their exact structure is almost always a product of negotiation, and the result often reflects each side’s relative bargaining power. A well-known retail tenant whose presence helps anchor smaller leases in the same property is generally in a far stronger position to secure meaningful co-tenancy protection than a smaller or newer tenant with less leverage.

Tenants negotiating a co-tenancy clause typically focus on a few key points: how the occupancy threshold and qualifying anchors are defined, how quickly alternate rent kicks in once a shortfall occurs, how long the landlord’s cure period lasts before a termination right becomes available, and whether the clause survives into any renewal term. As with other heavily negotiated lease terms — see our related guides on exclusivity clauses and rent escalation clauses, the first draft from a landlord will typically favour the landlord’s position, and it’s generally worth comparing the final wording against the hub overview at Commercial Leases before treating any single clause in isolation.