What is a co-tenancy clause and why should a buyer worry if the anchor tenant leaves a retail plaza?

A co-tenancy clause is a lease provision, common among smaller retail tenants in a plaza, that ties their own rent or continued occupancy to the presence of a named anchor tenant or a minimum overall occupancy level in the plaza. If the anchor leaves, or occupancy drops below the threshold the clause specifies, the smaller tenant may be entitled to pay reduced rent, switch to percentage-only rent, or in some cases terminate its own lease entirely.

This is a real risk for a buyer because losing one major tenant can trigger a chain reaction across the property's income, rather than a single, contained loss. A plaza that looks fully leased and stable on paper can see several smaller tenants' rent drop or leases end shortly after an anchor departs, meaningfully changing the income the buyer underwrote the purchase on.

Before buying an income-producing retail property, a buyer should review every lease specifically for co-tenancy language, understand exactly which tenant departures or occupancy drops would trigger it, and stress-test the property's income against the possibility of losing the anchor, rather than treating the anchor's presence as a permanent given.