As department store tenants continue to exit the market and shopping centers shift away from traditional anchor-based models, co-tenancy provisions and anchor replacement clauses are increasingly giving rise to practical challenges and litigation.

In Rubin v. Venator Group Retail, Inc. (Conn. Super. Ct., Apr. 3, 2000), 27 Conn. L. Rptr. 62, the Superior Court of Connecticut held that a commercial tenant properly exercised its right to terminate a lease for a co-tenancy violation where a replacement department store tenant did not open for business within the lease’s six-month cure period.

The tenant, Footlocker (the predecessor-in-interest to Venator Group Retail Inc.), entered into a ten-year lease with Matthew Rubin, as landlord, for space in a Connecticut shopping center. The lease contained a co-tenancy clause providing:

“If any department store shall cease to operate for a period of six months, Lessee may choose to cancel this lease or in lieu of minimum rent, to pay six (6%) of gross sales. Department store shall mean Sage Allen & Company and Caldor, and Lessor shall have the right to replace said Sage Allen & Company and Caldor with a comparable department store within said six month period before Lessee’s option to cancel shall be applicable.”

During the lease term, Caldor ceased operations at the shopping center. Two months later, Caldor assigned its lease to Walmart. However, Walmart did not open for business in the premises. More than six months after Caldor closed, the tenant notified the landlord that it was exercising its co-tenancy termination right on the grounds that no qualifying department store had been open and operating in the Caldor space during the six-month period.

The landlord sued, arguing that the co-tenancy requirement was satisfied when Caldor assigned its lease to Walmart, even though Walmart had not yet opened (and in fact was still not open more than a year after the assignment, at the time of the court’s decision). The landlord emphasized that the lease did not expressly require the comparable replacement department store to be open and operating within the six-month period and contended that it could not have been landlord’s intent to agree to that requirement in the lease because it would be impractical to achieve.

The tenant countered that a closed store could not constitute a “comparable department store” for purposes of replacing one that had been operating. The court agreed. It reasoned that the language of the co-tenancy clause focused on operation, and the tenant’s right was triggered “[i]f any department store shall cease to operate for a period of six months.” The only benchmark in the clause was the operation of a department store. Accordingly, to “replace” a department store, the landlord was required to substitute a comparable department store that was open and operating within the six-month period. Because Walmart was not open and operating in the shopping center, the landlord had not satisfied the replacement provision, and the tenant properly exercised its termination right.

This case underscores the importance of precision in drafting co-tenancy and replacement provisions to address competing interests. Tenants require open and operating stores meeting specific criteria to drive traffic and generate synergy. Landlords, on the other hand, require time and flexibility to re-tenant space and pivot their shopping centers to match the realities of the evolving market. Clear language addressing what constitutes a replacement, and whether a replacement tenant must have an executed lease, be in possession of leased space, or be open and operating—and by when—can significantly reduce ambiguity and litigation risk.