Is 12% occupancy cost too high for a restaurant?

Twelve percent occupancy cost is above the healthy range for most restaurants. Public chains report rent and occupancy between roughly 5% and 11% of sales. At 12%, a restaurant is carrying rent that will show up as thin margins by year three.

What does occupancy cost include?

Occupancy cost is total annual occupancy divided by annual gross sales. It includes base rent, CAM, property taxes, building insurance, and percentage rent where it applies. Utilities usually sit outside it.

How do I test whether a rent is too high?

Divide the proposed annual occupancy cost by the tenant's realistic annual sales. If the result exceeds 10%, the tenant needs higher volume than projected or a lower rent.

What Is a Co-Tenancy Clause, and Should a Landlord Agree to One?

Sep 26

Written By Retail Made

A co-tenancy clause ties a tenant's rent obligation to the presence of other tenants. If named stores go dark or occupancy falls below a stated threshold, the tenant can reduce rent, and after a period, terminate.

It exists because a tenant is not only buying square footage. They are buying the traffic the rest of the property generates.

The two kinds

Opening co-tenancy governs the start of the lease. The tenant is not obligated to open, or to pay full rent, until named anchors are open and operating. It protects a tenant from being the first and only store open in a property that never fills.

Ongoing co-tenancy governs the rest of the term. If named tenants close, or total occupancy drops below a threshold, remedies trigger. This is the one that keeps landlords and lenders up at night.

How the remedies usually work

The standard structure is alternative rent, then termination.

The tenant pays a reduced rent — often a percentage of sales instead of base rent — while the co-tenancy failure continues. If it is not cured within a stated period, commonly six to twelve months, the tenant may terminate.

The negotiation is almost entirely about three things: which tenants are named, what threshold triggers the clause, and how long the landlord has to cure before termination becomes available.

Why a landlord should hesitate

One co-tenancy clause is a risk. Several are a chain reaction.

If three tenants each have a clause naming the same anchor, that anchor closing does not cost you one tenant's rent. It cuts rent across a meaningful share of the property at the moment you can least afford it — and it can happen for reasons entirely outside your control, like a national chain restructuring.

Lenders read these clauses closely. A property with widespread co-tenancy rights has less reliable income, and that can affect financing terms or a future sale.

When to agree to one

Agree when the tenant's concern is legitimate and the risk is contained.

A first tenant signing into a property that is 30% leased has a real problem, and an opening co-tenancy solves it fairly. A tenant whose business genuinely depends on a specific anchor's traffic is describing something true.

What makes it containable: name a small number of tenants or a category rather than a specific brand, set the occupancy threshold low enough that ordinary turnover does not trigger it, give yourself a long cure period, and make the replacement standard a category match rather than an identical brand.

When to refuse

Refuse when the tenant is using it as a general escape hatch.

A clause naming half the property, with a short cure period and immediate termination rights, is not protection against a traffic failure. It is a way out of a lease the tenant may later regret, paid for by your income stability.

The honest version of the conversation is worth having out loud: if the traffic risk is that severe, the rent should reflect it. A lower base rent with percentage participation shares the risk in both directions, which is usually a better trade than a termination right.

Lease Negotiation Tactics covers co-tenancy alongside exclusives, kick-outs and radius restrictions, including what each side wants and where compromise usually lands.

Retail Made