Go Dark

Definition

Go Dark refers to when a retail tenant stops operating in their rented space, especially in the context of anchor tenants in a shopping center. This decision can significantly affect the overall performance and attractiveness of the shopping center. The tenant may continue to fulfill their lease obligations by paying rent, but their inactivity can lead to a drop in customer visits and can go as far as making the shopping center less viable.

Example

Wal-Sam Store Closure: Wal-Sam decided to go dark to open a larger store a few miles south of their current location in Hot Town. Following Wal-Sam’s closure, the shopping center lost much of its customer base. Eventually, only scavenger tenants were willing to take up space in the shopping center after Wal-Sam went dark.
Food Mart Shutdown: A Food Mart outlet in a small town went dark because the chain decided to close less profitable locations. The shopping center where it was an anchor tenant subsequently lost its appeal to shoppers, causing other smaller retail tenants to face financial difficulties and some to even shut down or relocate.

Frequently Asked Questions

What is a Continuous Operations Clause? A Continuous Operations Clause is a provision in a lease agreement that requires the tenant to operate its business continuously during the lease term. This clause helps landlords ensure that anchor tenants do not ‘go dark’ and thereby maintain the shopping center’s traffic and viability.

What is a Cotenancy Agreement? A Cotenancy Agreement is a lease provision where a tenant’s rental obligations or lease terms may change if key tenants, like anchor stores, ‘go dark’ or vacate. This agreement protects tenants if the shopping center’s major attractions that draw foot traffic no longer operate.

How can a ‘go dark’ situation impact smaller tenants? When an anchor tenant goes dark, it often results in decreased foot traffic to the shopping center. This can heavily impact smaller tenants who rely on the anchor tenant to attract customers. The loss of foot traffic may cause revenue declines, making it difficult for smaller tenants to sustain their operations.

Are there any legal remedies for landlords when tenants go dark? Landlords may include Continuous Operations Clauses and other similar provisions in lease agreements to prevent tenants from going dark. Additionally, many lease agreements may contain clauses allowing landlords to impose penalties or seek damages if tenants fail to operate continuously.

Continuous Operations Clause: A lease agreement clause that ensures tenants must operate their business continuously throughout the lease term.
Cotenancy Agreement: A leasing provision that allows lease terms to be adjusted if certain conditions, like the departure of an anchor tenant, occur.
Anchor Tenant: A major or anchor tenant is a large retail tenant that significantly draws customers to a shopping center.
Scavenger Tenants: Typically smaller tenants who move into a shopping center space vacated by larger tenants or anchor tenants, often at a lower rent.
Retail Vacancy: The phenomenon of empty retail spaces within a shopping center or retail area.

Online Resources

References

Malloy, Robin Paul. “Real Estate Transactions: Cases and Materials on Land Transfer, Development and Finance.” Wolters Kluwer Law & Business, 2013.
Klien, Bob. “Navigating New Retail & Mixed-Use Real Estate Markets.” John Wiley & Sons, 2011.

Suggested Books for Further Studies

Fisher, Peter, and Fisher, Nancy. “The Property Management Tool Kit.” AMACOM, 2008.
Mitchell, Jason. “Retail Development.” ULI - the Urban Land Institute, 2007.
Wright, Leanne, and Johnson, Paul. “Real Estate Principles: A Value Approach.” McGraw-Hill Education, 2018.
Berman, Barry J. “Competing in Tough Times: Business Lessons from L.L. Bean, Trader Joe’s, Costco, and Other Low-Cost Retailers.” FT Press, 2011.

Real Estate Basics: Go Dark Fundamentals Quiz

### What does 'Go Dark' term refer to in commercial real estate? - [x] When a retail tenant stops operating in their leased space but continues to pay rent. - [ ] When a tenant completely vacates the leased space without paying rent. - [ ] An end-of-day inventory practice for retail stores. - [ ] A reduction in store lighting to save energy. > **Explanation:** 'Go Dark' refers to when a retail tenant ceases their operations in a leased space but may still pay rent, affecting the shopping center's viability and foot traffic. ### Which clause in a lease agreement can help avoid an anchor tenant from going dark? - [ ] Non-Compete Clause - [x] Continuous Operations Clause - [ ] Market Rates Adjustment Clause - [ ] Indemnity Clause > **Explanation:** A Continuous Operations Clause in a lease agreement ensures that tenants operate their business continuously during the lease term, preventing them from going dark. ### Why is the presence of an anchor tenant crucial for a shopping center? - [ ] They offer lower rent to neighboring tenants. - [ ] They assist in property management tasks. - [x] They draw significant foot traffic that benefits smaller stores in the center. - [ ] They reduce the lease term for all tenants. > **Explanation:** An anchor tenant attracts significant customer foot traffic to the shopping center, which in turn benefits smaller stores operating therein. ### What can landlords incorporate in lease agreements to mitigate the impact of tenants going dark? - [ ] Lower rental rates - [x] Cotenancy Agreements - [ ] Shortened lease durations - [ ] Increased utility bills > **Explanation:** Landlords can incorporate Cotenancy Agreements in lease agreements, allowing adjustment of lease terms if anchor tenants go dark, protecting other tenants. ### What might happen to a shopping center's viability if an anchor tenant goes dark? - [x] The shopping center may lose viability due to decreased foot traffic. - [ ] No noticeable impact since payments are still made. - [ ] The shopping center may attract high-end stores. - [ ] Maintenance costs would drastically reduce. > **Explanation:** A shopping center's viability may decrease if an anchor tenant goes dark due to reduced customer traffic, which can lead to lower revenues for other stores. ### How do smaller tenants suffer if an anchor tenant goes dark? - [ ] They get locked out of their contracts. - [ ] Rent payments instantly double. - [ ] Security deposits are forfeited. - [x] Their revenue can decline due to reduced foot traffic. > **Explanation:** Smaller tenants often rely on the foot traffic generated by anchor tenants; when an anchor tenant goes dark, this foot traffic decreases, leading to potential revenue decline for the smaller tenants. ### What legal documentation can help small tenants when an anchor tenant goes dark? - [ ] Title insurance - [ ] Property tax exemption - [ ] Indemnity Clause - [x] Cotenancy Agreement > **Explanation:** A Cotenancy Agreement can provide protections for small tenants if key anchor tenants in a shopping center go dark. ### If a retail tenant goes dark, which of the following is potentially more attracted to the property? - [ ] High-profile brands - [ ] High-cost specialty stores - [ ] Luxury boutiquestes - [x] Scavenger tenants > **Explanation:** If a prominent retail tenant goes dark, the property may attract scavenger tenants who tend to move into spaces at lower rent rates previously occupied by larger tenants. ### What obligation does a tenant fulfill if they go dark? - [x] They continue to pay rent despite ceasing operations. - [ ] They continue full operations with reduced staff. - [ ] They vacate the space immediately. - [ ] They shutter the store without any payments. > **Explanation:** When a tenant goes dark, they fulfill the obligation of continuing to pay rent despite ceasing operations in the leased space. ### Why might a major retailer choose to go dark? - [x] To relocate to a larger or more advantageous location. - [ ] Due to flooding issues in the space. - [ ] To decrease payroll costs temporarily. - [ ] To offload unsold inventory. > **Explanation:** A major retailer might choose to go dark to open a larger or more strategically advantageous location, thereby ceasing operations in the original leased space while still paying rent.