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most leases, leading to a default by tenant. Therefore, if a tenant requires a restructuring, rebranding, or other activity that would lead to closing the store for an extended period of time, but the tenant intends to reopen in the future, a go dark provision would preserve the time, cost, and advantage already utilized in obtaining the current space. Why Landlords Dislike Go Dark Provisions As stated above, go dark provisions are tenant-driven. You wont find them in landlord lease forms, and most landlords are very hesitant to agree to a tenants right to go dark. Below is a list of considerations and concerns a landlord should evaluate before agreeing to include a go dark clause in its lease: 1. Effect on the development. If the tenant in question is an anchor tenant, its operations are essential to the success of the development. Smaller tenants seek certain anchors when chosing their retail space. Therefore, if the anchor goes dark, other tenants might start complaining, and future tenants might be scared off. 2. Percentage rent. Landlords seek rent from their tenants in several forms. For successful tenants, percentage rent (calculated as a percentage of tenants profits) can be a significant source of landlords income from the property. Obviously, if the tenant ceases operations, percentage rent is no longer available from that tenant. Granted, if a tenant is doing well enough to pay percentage rent, it is unlikely to go dark. 3. Location of tenant. Tenants with higher visibility should be less attractive candidates for go dark provisions. A shopping center is not well served having vacant storefronts fronting major roadways. An interior tenant might not put such a black mark on the development by going dark. 4. Exclusivity. As mentioned above, a tenants decision to go dark, coupled with an exclusive use clause, could prevent landlord from offering a certain type of store to its customers. 5. Default avoidance. A tenant that becomes aware that it might default under the lease, for whatever reason, may choose to go dark as a means to prevent its default. Tenants election to go dark prevents landlord from exercising the full scope of remedies available to it in the event of a default. As you can see there are a number of negatives to granting a go dark right to a tenant. Those negatives can amplify given the size and influence of the tenant in question. Landlord Solutions If a tenant insists upon a go dark provision (and the landlord insists on leasing to the tenant), there are a number of options available to a landlord to protect itself from some of the above-mentioned risks.
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1. Recapture. This is probably the most attractive and most commonly used landlord protection against a tenants decision to go dark. A recapture clause permits the landlord to terminate a lease in which the tenant has gone dark, with no default to either party. This is useful when the landlord identifies an alternate tenant for the space. Also, landlord can avoid tenants efforts to block competition, as tenants exclusive use provision ends upon recapture of the space. 2. Relocation. A relocation provision could allow a landlord to move a visible tenant that has gone dark to a less visible portion of the shopping center, thus reducing the effect of its closure. 3. Notice. Requiring the tenant to give advance written notice of its intent to go dark (say 90 days) allows the landlord time to react to the situation by looking for a replacement tenant or seeking to exercise another option under the lease. Also, requiring notice prevents tenant from going dark merely as a means to avoid default (unless such default is foreseeable months in advance). 4. One-time right. A tenant should not be able to go dark repeatedly, only to reopen later. The inconsistency created by repeated dark periods would likely impact landlords operations with other tenants and confuse patrons of the subject store. Thus, landlords should limit the right to go dark to a single occurrence available to tenant. Conclusion A go dark provision is a useful tool for large retail tenants to manage their multiple stores. However, landlords must be careful that tenants flexibility is limited so as not to adversely impact the development at large.
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Posted in Uncategorized | Tags: Go Dark, Landlord, Retail Leases, Tenant 1. Very interesting post! In this economy it must have been thousands of tenants who went dark.
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By: Executive Suites for Lease, Dallas TX on November 20, 2010 at 2:02 am Reply 2. Very good information. Nathan Bragg, Commercial Real Estate Broker By: nathan bragg on January 5, 2011 at 4:17 pm Reply 3. this was a great help negoliating with a large corporate tenant, thanks for making this site available!! I will be networking your site! By: Fiona Fraser on July 7, 2011 at 7:01 pm Reply
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