Does Your Lease Have an Operating Covenant?

Originally published 2^nd Quarter 2005

A retail lease should include a covenant requiring a tenant to operate in the premises. The covenant needs to state clearly and unequivocally that a tenant will be required to operate in the premises for the term of the lease. The active and open operation of tenancies is the essence of retail and what ultimately makes for a successful shopping center. A clear operating covenant, or lack thereof, also facilitates the party''s exit strategy from the lease which is oftentimes more important than the actual operation of the business in the premises.

Landlords can best serve their goal of maintaining operation of a tenancy not only by having a clear and unequivocal operating covenant in the lease, but by drafting other clauses in the lease with the mindset that these other clauses can and should reinforce the unequivocal nature of the operating covenant. With the proper use of these other clauses and