One of the most valuable
lease terms that you can negotiate is the "go dark" clause. Go dark clauses give you the opportunity to vacate an unprofitable space. Together with a co-tenancy clause, they can give you the ability to not just shut down an unprofitable operation but also get out of paying rent for the location.
Go-Dark Clauses
Most leases require you to continuously operate your business while you are leasing space in the property and if you violate your center's hours of operation or close down completely, you could end up in default. A go-dark clause gives you the opportunity to shut down your operation without sanction from the landlord as long as you continue paying your rent.
Landlords frequently oppose granting go-dark clauses because they can lead to rolling vacancies as tenants move out to avoid being in a center with gradually shrinking traffic. One of the lease terms that a landlord may offer you instead is a go-dim clause that requires you to modify the way you operate or your operation hours to reduce your costs.
Another option that your lease may contain is a recapture clause. Recapture lease terms let your landlord take your space back and cancel your lease obligations if you go dark. While this can be valuable if you want to get out of the space, it also means that going dark could make you lose your space once and for all if the landlord recaptures it.
Co-Tenancy Clauses
Co-tenancy clauses take the go-dark clause one step further. They allow you to not just cease operations but also to reduce or completely abate your rent. They're triggered when specified vacancies occur in the center. Frequently used in anchored centers to allow in-line tenants to vacate if an anchor goes dark, the co-tenancy clause can protect you against being in a center that doesn't have the promised level of traffic.
Co-tenancy clauses come in three types:
Once you open your location, the co-tenancy clause either lets you move out and effectively cancel your lease or significantly reduces your rent, usually to a pre-set percentage of your sales at the location. These lease terms can also vary by how they get triggered. Named co-tenancy clauses list specific tenants that have to move out to trigger the provision while occupancy threshold clauses simply refer to a flat occupancy percentage, regardless of how it is achieved.
Co-tenancy clauses are extremely valuable when the space you occupy deteriorates in traffic.
Should I Stay Or Should I Go?
Just because your business has go-dark or co-tenancy lease terms doesn't mean that they should be used. Going dark can disrupt relationships with existing customers, running the risk of sending them to your competitors.
Canceling your lease under a co-tenancy clause or having it taken from you through a recapture provision means that you lose all of your rights to your space. While this might not seem like a problem if a center is dying, you could end up regretting the loss if the center is revitalized by new tenants and becomes a place that you'd like to occupy. As such, using go-dark and co-tenancy clauses is actually a nuanced strategic decision.
A tenant rep can help you every step of the way, make you sure have one on your side.
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FAQs
A provision highly sought after by tenants, the typical “go dark” provision allows a tenant to completely cease operations at the premises without being in default of its lease; provided that the tenant is not then currently in default, continues to pay rent to the landlord and meets its other obligations under the ...
What does "going dark" mean in retail? ›
The tenant's right to cease operations at its leased space while the tenant continues to pay rent. A go dark clause is commonly negotiated in retail leases. The right to go dark provides tenants with maximum flexibility, which is especially important for large national retail tenants.
What does "go dark" mean in a lease? ›
A go dark provision is clause often used in retail leases which governs whether or not a tenant may vacate a space, while continuing to pay rent, prior to lease maturity. Opposite of a continuous operating covenant, go dark provisions allow a tenant to cease business operations when they turn unprofitable.
What is a dark tenant? ›
Dark Tenant means any Person that rents or leases a portion of a Borrowing Base Property and makes rental or lease payments in respect of its interests in such Borrowing Base Property prior to or subsequent to occupying or taking possession of such portion of a Borrowing Base Property, but in no event currently ...
What does "to go dark" mean? ›
Going dark is military lingo for the sudden termination of communication. The term used to describe a scenario in which communication appears to have ceased, but in reality has just moved from a public communication channel, where it could be monitored, to a private communication channel that prevents eavesdropping.
What is the exclusive use clause in a retail lease? ›
This prevents the landlord from putting competing businesses in the same plaza, mall or building. For example, a coffee shop might have an exclusive use clause that prohibits the bookstore next door from adding a coffee bar, since that would put them in direct competition.
What is the legal term going dark? ›
The deregistration process or “going dark” is the process by which a company that is subject to reporting to the Securities and Exchange Commission(“SEC”), pursuant to Section 12 of Securities Exchange Act of 1934 (the “1934 Act”) deregisters from these requirements and becomes a private company.
What is the concept of going dark? ›
Going dark refers to when a public company becomes a private company. It is also referred to as “deregistration.” The Securities and Exchange Commission (SEC) regulates how companies can go dark in Rule 12d2-2, requiring them to file a Form 25.
What is a going dark transaction? ›
The term “going dark” refers to the process of voluntarily terminating and/or suspending a public reporting company's statutory obligations to file periodic reports (i.e., Forms 10-K, 10-Q and 8-K) imposed by Sections 13(a) and 15(d) of the Exchange Act, potentially leading to a lack of publically available information ...
What is a go dark value? ›
Thirdly, some lenders look at the “dark value” of a property submitted by an appraiser as an additional underwriting metric. The dark value is the value of the property should it “go dark” (become vacant). These lenders will lend a certain percentage of dark value, often around 100%.
For publicly traded companies, going dark means they are delisting from an exchange (e.g., NASDAQ) and simultaneously deregistering with the Securities and Exchange Commission.
What does dark property mean? ›
Dark Property means any Property as to which (i) all leases have terminated or (ii) the Borrower is not recognizing revenue from any tenants in accordance with GAAP as of the last day of the Current Reporting Quarter.
What is a tenant secret? ›
Cache-only key tenant secrets are keys which CCKM creates from CipherTrust Manager or DSM, and uploads to Salesforce, which stores the key material in the encrypted key cache to encrypt or decrypt data on demand.
What is a bad landlord called? ›
A slumlord (or slum landlord) is a slang term for a landlord, generally an absentee landlord with more than one property, who attempts to maximize profit by minimizing spending on property maintenance, and to tenants that they can intimidate.
What is a dark commercial property? ›
Dark Property means any Property where a Sole Tenant (i) vacates, surrenders or ceases to conduct its normal business operations or (ii) notifies Borrower, Manager, any Affiliate of Borrower or Manager or any of their respective agents or representatives that it intends to vacate, surrender or cease to conduct its ...
What does it mean for a business to go dark? ›
What is Going Dark? ● Delisting a public company's shares from an. exchange (e.g., NYSE, NYSE Amex, Nasdaq) (if applicable) and. ● terminating/suspending a company's SEC.
What is the odor clause in a lease? ›
No tenant shall cause or permit any unusual or objectionable odors to emanate from its premises which would annoy other tenants or create a public or private nuisance. No cooking shall be done in the premises of any tenant except as is expressly permitted in such tenant's Lease.
What is the prohibition clause of a lease? ›
Tenant shall not assign or in any manner transfer this Lease or any estate or interest therein, or sublet the Premises or any part thereof or grant any license, concession or other right of occupancy of any portion of the Premises without the prior written consent of Landlord, which consent shall not be unreasonably ...
lease terms that you can negotiate is the "go dark" clause. Go dark clauses give you the opportunity to vacate an unprofitable space. Together with a co-tenancy clause, they can give you the ability to not just shut down an unprofitable operation but also get out of paying rent for the location.
