Lease Clauses Explained

When you own a commercial unit in a Lagos mall and your lease includes a co-tenancy clause, you are not the one holding a right — you are the one granting it. Most investors only discover what that means after a major anchor tenant leaves. This post explains the clause in full, so you understand it before it matters.

The Co-Tenancy Clause: What Every Lagos Mall Investor Must Understand Before Signing

This post is part of a wider guide on investing in larger off-plan mall units in Lagos. If you are evaluating a 90sqm–150sqm unit and want the full investment picture — infrastructure, leasing structures, CAM charges, and title documentation — read the main guide here →

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In this post

Why this clause exists in Lagos malls

01

What the co-tenancy clause actually is

02

03

04

05

06

07

What triggers it

What your tenant can do when it triggers

Why you, as the owner, would agree to it

How to protect yourself

The investor's summary

Why this clause exists in Lagos malls

When you purchase a unit of 120sqm or 150sqm in an off-plan mall, your target tenants are not small boutiques. You are courting banks, pharmacy chains, QSR restaurant groups, electronics retailers — businesses that conduct formal site assessments before committing to a lease, and that have legal teams who review every clause in the document you put in front of them.

These tenants understand something that individual property investors sometimes don't: their business's performance is not just a function of how good their product is. It is also a function of who else is in the mall with them. A bank branch in a busy, well-anchored Lagos mall will process far more transactions than the same bank branch in a mall that has quietly emptied. Their foot traffic is shared infrastructure.

The co-tenancy clause is how sophisticated tenants protect themselves from signing a long lease in a mall that subsequently loses its draw. As the unit owner — the landlord — it is a right you grant them. Understanding what you are conceding, and how to limit it intelligently, is the difference between a good investment and a better investment.

A co-tenancy clause is a provision in a commercial lease that links your tenant's rental obligation to the operational health of the wider mall. If the mall deteriorates beyond a defined threshold — typically the departure of a named anchor tenant or a fall in overall occupancy — the clause gives your tenant specific remedies: the right to pay reduced rent, or in some cases, to exit the lease entirely.

What the co-tenancy clause actually is

Definition

The clause creates a contractual dependency between what your tenant pays you and what the rest of the mall is doing. It is important to be clear on the direction of this right. The co-tenancy clause is not a protection you hold as the owner. It is a concession you make to the tenant. The tenant holds the right. The tenant exercises it — or chooses not to. Your role, when the clause is triggered, is to respond to it, not to activate it.

The trigger conditions are the most negotiable part of the clause, and therefore, the most important to get right before you sign. A poorly defined trigger can allow a tenant to invoke the clause based on circumstances that have nothing to do with the real commercial health of the mall.

What triggers it

There are two broad categories of trigger are common in commercial leases:

Trigger Type 01

The Anchor Vacancy — a specific named anchor tenant departs the mall, or the mall's total occupancy rate falls below a predetermined threshold. Common thresholds are set at 70–75% of total lettable area.

Trigger Type 02

The Closure Event — a material number of other retail units in the mall close within a defined period, effectively shifting the character of the mall from active commercial centre to underperforming space.

Your negotiating priority

The trigger should be defined with maximum specificity. A clause that activates when "a significant anchor tenant" leaves is dangerous — because "significant" is subjective and will be argued in your tenant's favour. A clause that activates only when a named supermarket chain or cinema operator departs is far more defensible. Ensure names, not categories.

What your tenant can do when it triggers

Once the trigger condition is met and the clause activates, the lease gives your tenant one or both of the following remedies. Which ones apply — and under what conditions — is a matter of what was agreed when the lease was signed.

Abated Rent

Early Termination

The tenant is permitted to pay a significantly reduced base rent — sometimes as low as a percentage of their gross sales rather than a fixed figure — for a defined period. This lasts until either a replacement anchor is secured or the agreed period expires.

The tenant receives the right to break the lease and vacate the unit before the agreed end date, without penalty. For a five or ten year lease, this represents a significant exposure if it is triggered early in the term.

The distinction between these two remedies matters enormously in practice. Abated rent is painful but manageable — you may lose income for a period while working to restore the mall's commercial health. Early termination is financially more damaging: you may lose the tenant entirely, and must re-let a large commercial unit in a mall that may already under stress.

Your goal in lease negotiations is to limit the tenant's available remedy to abated rent only, with early termination reserved for the most extreme scenarios — or excluded altogether provided you've got the negotiating leverage to do so.

Why you, as the owner, would agree to it

This is the question that every rational investor asks when they first encounter the clause: why would I ever sign something that gives my tenant the right to stop paying me full rent?

The answer is: leasability.

High-quality, credit-worthy tenants — a national bank, a major pharmacy chain, a well-capitalised restaurant group — know their own worth. They have analysed Lagos commercial real estate. They understand that if the mall they sign into subsequently loses its primary anchor, their own revenue will fall. They are not willing to be contractually locked into a full rent obligation under those conditions. If you refuse to include a co-tenancy clause, they will not sign with you.

The realistic alternative — a 150sqm unit with no co-tenancy clause — will attract lower-quality tenants who are either less commercially sophisticated or less commercially viable. Those tenants are statistically more likely to default on rent entirely. A clause that reduces your rent temporarily in adverse conditions is often a better commercial outcome than a tenant who has the tendency to default and cannot be strongly held to account.

The co-tenancy clause is, in this sense, a signal of tenant quality. If a prospective tenant does not ask for it, that itself is worth examining.

How to protect yourself as the owner

Agreeing in principle to include a co-tenancy clause is not the same as accepting every version of one. The clause is negotiable, and your goal is to make it as difficult to trigger — and as limited in its consequences — as possible. Here are four means of self-preservation that your lawyer should be building into the lease.

1

Define the anchor with precision

Do not allow the trigger to activate on "any" store leaving. Limit it to specific named tenants or tightly defined categories — the cinema, the anchor supermarket. If a mid-size boutique closes, the clause should not move. The more narrowly defined the trigger, the harder it is to invoke.

2

Include on a Cure Period

Never allow the clause to activate immediately upon a trigger event. Negotiate a Cure Period — typically six to twelve months — during which you have the right to join efforts with the facility managers to replace the departed anchor before the tenant is legally permitted to reduce rent or exit. This is your operational window. Without it, a single tenant departure can cascade into lease abatements before you have had any reasonable opportunity to respond.

3

Require a minimum sales performance threshold

As the tenant demands co-tenancy protections, it is reasonable for you to demand a reciprocal obligation. A minimum sales performance clause gives the landlord the right to review, renegotiate, or terminate the lease if the tenant’s sales fall below an agreed threshold for a sustained period, assuming the mall itself remains commercially functional and agreed operating conditions are being met.

Co-tenancy clauses protect tenants from being locked into a location where surrounding occupancy, foot traffic, or mall performance deteriorates. A minimum performance threshold can serve a similar function for the landlord by protecting against long-term occupancy by a tenant whose location-specific performance remains materially below expectations despite healthy mall conditions.

The value of this termination right is flexibility, optionality and latitude. A persistently underperforming tenant can reduce the commercial effectiveness of a unit in several ways. Severe weak trading performance is an early indicator of the probability of rent renegotiation requests, deferred maintenance, downsizing pressure, and eventual default. In some retail categories, an inactive or low-performing occupier can also reduce customer movement around surrounding units.

Therefore, a termination right gives the landlord the ability to proactively re-tenant the space with an operator whose business model may be better suited to the location, catchment profile, or customer traffic pattern. In a commercially healthy mall, replacing an underperforming occupier is more likely to improve long-term income durability and strengthen the attractiveness of the surrounding retail environment.

This threshold itself should also be commercially realistic and carefully defined. Relevant considerations include reporting standards, measurement periods, cure periods, seasonality, category-specific performance expectations, and exclusions for events outside the tenant’s control.

4

Require formal written notice before any remedy is exercised

The tenant must not be permitted to unilaterally withhold rent or vacate the premises simply because a trigger event has occurred. The lease should require the tenant to serve formal, written notice before exercising any right under the co-tenancy clause. This creates a documented record, provides you with advance warning, and prevents informal or opportunistic invocations of the clause.

The investor's summary

A co-tenancy clause is a common feature of large-format retail leasing. It reflects a practical reality of mall investments: tenant performance depends partly on conditions beyond the individual unit itself, including occupancy levels, anchor presence, facility management quality, and customer traffic across the wider development.

Co-tenancy provisions can make a unit more attractive to financially credible tenants willing to commit to longer lease terms and substantial fit-out investment.

For investors, the commercial effect is mixed and depends on how the clause is negotiated and drafted.

For the owner

Potential benefit

Relevant consideration

The clause may create situations where rent reductions or termination rights apply if agreed occupancy or operational thresholds are no longer met.

For the tenant

Potential benefit

The clause provides protection if the mall experiences material deterioration in occupancy, anchor presence, or customer traffic.

Relevant consideration

Activation often occurs during periods of weaker commercial performance, when the tenant’s business may already be under pressure.

Lease review considerations

When reviewing a lease for a larger-format unit, examine sections titled “Tenant Remedies,” “Co-Tenancy Provisions,” or similar wording. The absence of a co-tenancy clause does not always reduce certain landlord-side risks. Tenant expectations and lease flexibility requirements may also differ depending on tenant category and bargaining power. If a co-tenancy provision is included, the practical question becomes how clearly it is limited and defined. Cure periods, notice requirements, measurable trigger events, temporary remedy periods, and reciprocal obligations influence how predictable the clause becomes in practice.

A practical legal check

For retail units of roughly 120sqm and above in Lagos malls, ask legal counsel to review whether any co-tenancy clause includes a clearly defined cure period. A cure period creates time for operational or occupancy issues to be resolved before remedies such as rent reduction or termination become available. Its presence materially affects how manageable the clause becomes from an ownership perspective.

Buying 90sqm–150sqm in an Off-Plan Lagos Mall

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