‘Continuous operations’ language in lease agreements

| Jul 5, 2018 | Real Estate

We’ve seen many shopping centers, large and small, go from bustling, lucrative properties to ghost towns in seemingly the blink of an eye as neighborhoods evolve and consumer tastes change. It’s understandable that retailers who lease space in a shopping center want the option to close a store without penalty if the location becomes unprofitable for them and/or they find a better location elsewhere.

Landlords call this “going dark.” Of course, they want to protect themselves from having tenants — particularly large “anchor” stores — leave. Such closures can cause a downward spiral that can leave acres of vacant storefronts. That’s why they often include “continuous operation” language in their lease agreements to prevent tenants from leaving. Some tenants ask for a “no continuous obligation” provision in their agreements to codify their right to leave if the space becomes unprofitable for them or they wish to pursue a better opportunity

When a lease has no provisions that address continuous operations one way or another, some tenants who assumed that they had the right to go dark have faced lawsuits from their landlords. That has placed the issue in the hands of the courts to determine. Courts then look at the lease as a whole to determine whether the tenant had the legal right to pull out.

In one case that made its way to the appellate level, courts ruled that even with a “no continuous obligation” clause, a tenant didn’t have the right to go dark because it chose to (perhaps because it was having poor luck that may have nothing to do with its location) and therefore cause harm to the landlord.

Before drafting or signing any lease agreement, its wise to consult with an experienced Tennessee real estate attorney. This can help avoid leaving room for interpretation in a lease agreement that could leave your fate at the mercy of the courts.

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