Anchor Closures Have Landlords Eliminating Retailer Escape Clauses

As department stores continue to struggle mightily and exit malls across the country, landlords are doing what they can to stop the bleeding.

One of the more damaging after-effects of a mall's anchor going dark is the co-tenancy clause many smaller tenants have in their lease, allowing them to exit early if their larger neighbors close. But as closures continue, some landlords are removing such clauses from new leases, Bloomberg reports.

The push to either remove or restrict co-tenancy clauses in lease renewals is less than two years old, RCS Real Estate Advisors President and CEO Ivan Friedman told Bloomberg. Landlords are doing anything they can to stem the tide of negative absorption, which hit a new post-recession low in the second quarter in the wake of Toys R Us closing its stores.

While Sears, J.C. Penney and Macy's are more commonly located in enclosed malls, Toys R Us is not. All of these brands have closed stores in the past year, even as Macy's plans to expand its Bluemercury chain by 60 locations.

Smaller chains like Nine West and Claire's have also been distressed.

Nine West announced that it will be closing all stores this year, and Claire's Stores filed for bankruptcy last year. The CEO of Claire's specifically called out a relative lack of co-tenancy clauses as a factor in the chain's struggles, as they hampered its ability to escape leases that had turned into burdens.

Though rents continue to come down to keep stores in business, fewer co-tenancy clauses could accelerate the downfall of interior malls, Alix Partners Managing Director Kent Percy told Bloomberg. Percy predicted that fewer stores will renew their leases rather than leave themselves without early outs.