Continuous Operations Clause in a Commercial Lease
A continuous operations clause in a lease is a requirement that obligates the tenant to continuously operate its business throughout the term of the lease. This type of provision is commonly found in a commercial lease for retail space within shopping centers.
Advantages of including such a clause for a landlord are to assure steady rental income and to protect against vacant storefronts that act as a deterrent to shoppers and ultimately, detract from the entire shopping center. The basic concept is that if a store closes, the shopping center loses the customers attracted by the store and other tenants lose business.
While a continuous operations clause may be inferred from the terms of the lease, a landlord would be required to file a lawsuit for a court to make this determination. As an alternative to litigation, the easiest way to accomplish continuous use is by inserting a covenant in the lease making it both contemplated and agreed upon by the parties.
The terms of a continuous operations clause can be either clearly stated to include hours of operation and the stock of merchandise or types of services required to be offered OR much more simply stated, for example, “tenant shall continuously conduct its business during the term.” The difference may affect the remedies available to the landlord in the event of the tenant’s breach of the covenant.
In Ohio, although there may be practical impediments in ordering the tenant to operate a store against its will, there are no legal impediments to such an order. As a result, a court may enforce by injunction a clear and unambiguous continuous operations clause.
Additionally, Ohio law permits recovery of damages for the breach of a lease coupled with unpaid rent. For example, the landlord may suffer other damages caused by a breaching tenant, beyond the failure to pay rent, such as: the loss of other retail tenants, decreased rent income from other tenants or the inability to lease other vacant retail space. Should these damages arise and affect the landlord’s profitability, the harm may be compensable to the extent it is proven to have been caused by the tenant’s breach of the continuous operations clause.
A landlord, however, may have a duty to mitigate its damages. So, it is important to negotiate the available remedies and duties of the parties in the event of a default.
Typically, the parties to a commercial lease are knowledgeable and experienced. Negotiating a commercial lease for retail space within a shopping center requires the attention of a skilled attorney.
For any questions you may have regarding a commercial lease, please contact one of our real estate attorneys.
Disclaimer: The article in this publication has been prepared by Eastman & Smith Ltd. for informational purposes only and should not be considered legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney/client relationship.