The core tension: Landlords want tenants operating. Open stores generate foot traffic, percentage rent, and property value. Tenants want flexibility to close unprofitable locations without defaulting. A continuous operations clause is where these interests collide — and the clause language determines who wins when a store stops generating profit.
In the world of commercial retail leasing, the operating covenant — sometimes called a continuous operations clause or continuous use covenant — is one of the most aggressively negotiated provisions in any lease. It sits at the intersection of contract law, equitable remedies, percentage rent economics, and the practical reality of running a retail business in a changing market.
For landlords: a tenant who pays rent but doesn't operate is almost as bad as a tenant who doesn't pay. A dark storefront destroys the center's image, triggers co-tenancy rights for nearby tenants, eliminates percentage rent income, and signals property distress to prospective tenants. Operating covenants protect this interest.
For tenants: forced operation of an unprofitable store can accelerate losses and consume capital better deployed elsewhere. A continuous operations clause that locks a tenant into running a money-losing location for years is a trap — particularly if market conditions change, competition opens nearby, or the anchor tenant departs.
This guide explains exactly what operating covenants require, how courts enforce them, what happens when tenants go dark, and how to negotiate provisions that protect both parties' legitimate interests.
A continuous operations clause (also called an operating covenant, continuous use covenant, or operating requirement) obligates the tenant to actively conduct their business operations in the leased premises throughout the lease term. At its core, it says: you must be open.
Standard continuous operations language: "Tenant shall continuously occupy and use the Premises for the Permitted Use throughout the Term, and shall conduct business therein during the hours established by Landlord for the Shopping Center from time to time, in a first-class manner consistent with comparable retail establishments."
This language does several things:
In percentage rent leases, the landlord receives a percentage of the tenant's gross sales above the natural breakpoint. A dark tenant generates zero gross sales — and zero percentage rent. For an anchor tenant with meaningful percentage rent history, going dark can cost a landlord $50,000–$500,000+ annually in percentage rent income.
This is the landlord's biggest fear. If an anchor goes dark, smaller tenants with co-tenancy clauses can reduce their rent to fallback percentage rent. In a center where three major tenants have co-tenancy clauses keyed to the anchor's operation, the anchor going dark can trigger simultaneous rent reductions for all three — potentially reducing the landlord's total rent income by 40–60%.
Dark storefronts signal distress, deter new tenants, and reduce the shopping center's capitalized value. A center with a major dark anchor may see its capitalization rate rise from 6% to 8% — meaning an 8% cap vs. 6% cap on the same NOI reduces the property's value by 25%. For a $20M property, that's $5M in lost value from one dark store.
If the tenant holds an exclusive use clause prohibiting the landlord from leasing to competitors, but the tenant goes dark, the landlord is arguably still bound by the exclusive — unable to fill the dark space with a competing use or lease to a direct competitor who would otherwise be excluded. Operating covenants help prevent tenants from weaponizing exclusives against landlords by going dark while blocking the space from being re-tenanted.
A tenant "goes dark" when they remain a party to the lease (paying rent) but close the store to the public. Going dark is different from abandonment (not paying rent) and different from assignment (transferring the lease to another operator). A dark tenant occupies a unique purgatory: they're technically in compliance with financial obligations but violating the operating covenant.
Why tenants go dark rather than formally terminating:
Dark store litigation is increasing: Several high-profile cases involving national retailers going dark in shopping centers have resulted in injunctions, damages awards, and complex settlement structures. If you're a landlord, enforce your operating covenant quickly — delays can be construed as waiver. If you're a tenant facing a going-dark decision, understand the lease remedies before you close the doors.
The threshold question in continuous operations disputes is: can a court issue an injunction requiring the tenant to reopen and operate their business? The answer varies significantly by state and by the specific lease language.
Traditional contract law disfavors specific performance of obligations requiring ongoing business judgment, personal discretion, and continuous supervision by the court. Many courts have held that they will not compel a tenant to operate a business because:
A growing number of courts, particularly where:
...have granted injunctions requiring dark tenants to reopen. The key drafting lesson: if you're a landlord who wants injunctive relief as a practical remedy, include express "irreparable harm" language in the operating covenant. Courts are more likely to grant relief when the lease itself acknowledges the inadequacy of money damages.
| State | Injunction for Going Dark? | Notable Rule |
|---|---|---|
| California | Courts have granted in some cases | Requires showing inadequacy of money damages; lease language critical |
| New York | Generally reluctant to compel operation | Prefers damages remedy; good guy clause often resolves issue |
| Texas | Injunctions available where lease language supports | "Irreparable harm" language frequently enforced |
| Florida | Split; case-by-case analysis | Courts look to percentage rent impact and co-tenancy cascades |
| Illinois | Generally reluctant | Courts focus on adequacy of money damages |
Even where courts won't compel reopening, landlords have meaningful remedies for continuous operations violations:
The landlord declares a default, terminates the lease, and sues for damages including: lost base rent for the remaining term (subject to mitigation), lost percentage rent, costs to re-lease the space (brokerage, TI for replacement tenant), and property value diminution caused by the dark period.
A well-drafted continuous operations clause includes a "dark store rent" provision: if the tenant goes dark for more than [X] days for reasons other than casualty or permitted closure, rent automatically increases to [125–150]% of then-current base rent, payable until the tenant reopens or the lease terminates. This provision:
In practice, when a major tenant goes dark, the landlord and tenant often negotiate privately: the landlord grants a rent reduction or lease modification in exchange for the tenant committing to a reopening date or agreeing to a consensual lease termination. This is the most common real-world resolution — both parties prefer certainty to litigation.
"Tenant shall continuously open for business and operate its business in the Premises at all times during the Term during the Operating Hours designated by Landlord. Tenant acknowledges that the breach of this covenant will cause irreparable injury to Landlord not compensable in money damages, and Landlord shall be entitled to injunctive relief to enforce this covenant."
"Tenant shall continuously operate its business in the Premises during Operating Hours, provided that Tenant may temporarily cease operations for: (i) repairs or alterations not to exceed 90 days; (ii) casualty or condemnation; (iii) holidays listed in Exhibit [X]; and (iv) closures required by law or governmental order. Tenant shall provide Landlord with 30 days' prior written notice of any planned closure exceeding 5 consecutive business days."
"Tenant shall use commercially reasonable efforts to operate its business in the Premises during Operating Hours, consistent with Tenant's standard operating practices for comparable locations. Landlord acknowledges that Tenant's business operations are subject to market conditions, staffing, and business exigencies, and that Tenant shall have no liability for closure periods not to exceed 60 days per year in aggregate, provided Tenant remains current on all Rent obligations."
Negotiating tip: "Commercially reasonable efforts" is significantly weaker than "shall continuously operate" — a tenant who argues "our best efforts didn't generate enough sales to justify staying open" is in a far better position than a tenant who simply violated a hard operating obligation. Push for efforts-based rather than absolute operating standards.
Many retail leases require tenants to be open "during the hours established by Landlord from time to time." This gives the landlord unilateral power to expand operating hours — forcing tenants to be open on more days, longer hours, or during times (early morning, late evening) that may not be profitable for the tenant's concept.
A restaurant required to add 4 hours of daily operation per landlord demand faces real staffing costs. If minimum wage is $17/hour and an additional 4 hours requires 3 additional staff, that's $204/day × 365 = $74,460/year in additional labor — all because the landlord changed "Center Hours." This is a real and significant risk hidden in the operating hours language.
| Operating Hours Provision | Landlord Power | Tenant Risk |
|---|---|---|
| "During Center Hours as established by Landlord" | Full unilateral control | High — unlimited hour expansion |
| "During Center Hours not to exceed [X] hours/day" | Capped expansion right | Moderate |
| "[Specific hours, e.g., 10am–9pm Mon–Sat, 11am–6pm Sun]" | None — fixed hours | Low |
| "During Tenant's normal business hours for similar locations" | None — tenant-controlled | Low |
Always negotiate fixed operating hours or a cap on required hours, with explicit exceptions for holidays, renovations, and emergency closures. Use LeaseAI's clause library to compare operating hours language across market-standard leases.
Even a strict operating covenant should include reasonable carve-outs. Push for all of the following:
To fully appreciate why landlords care so intensely about operating covenants, consider a grocery-anchored strip center with the following tenants:
| Tenant | Size (sq ft) | Base Rent/yr | % Rent Rate | Typical % Rent/yr |
|---|---|---|---|---|
| Grocery Anchor | 45,000 | $540,000 | 1.5% over breakpoint | $75,000 |
| Inline Tenant A (restaurant) | 2,800 | $126,000 | 5% over breakpoint | $28,000 |
| Inline Tenant B (fitness) | 8,000 | $280,000 | 3% over breakpoint | $22,000 |
| Inline Tenant C (boutique) | 1,500 | $67,500 | 6% over breakpoint | $18,000 |
| Center Total | $1,013,500 | $143,000 |
If the grocery anchor goes dark:
On a property cap-rated at 6%, a $300,000 NOI reduction reduces property value by $5 million. This is why anchor operating covenants with explicit co-tenancy protections are the most aggressively negotiated provisions in shopping center leases.
Model your specific scenario at LeaseAI's lease calculator to understand how going-dark scenarios affect total occupancy cost and center economics.
Push for: no continuous operations obligation (or one limited to 5–7 years of a 20-year term); a sales-trigger that only imposes a continuous operations obligation when sales exceed a threshold (so unprofitable stores have an automatic right to go dark); and a termination right tied to below-threshold sales performance.
Push for: efforts-based rather than absolute operations standard; carve-outs for all listed contingencies; fixed operating hours (not "Center Hours as changed by Landlord"); and a dark store rent provision rather than automatic lease termination as the primary remedy.
Often have limited negotiating leverage but should still request: the complete set of carve-outs; fixed operating hours; and a dark store rent remedy rather than default/termination. The dark store rent alternative (you pay more rent but don't automatically default) gives you flexibility without landlord termination rights if business slows.
A continuous operations clause requires the tenant to actively operate their business in the leased premises throughout the lease term during specified hours. It prevents tenants from "going dark" — paying rent while keeping the store closed — which can harm the landlord's property value, trigger co-tenancy rights, and eliminate percentage rent income.
Landlord remedies include: injunction requiring reopening (available in some states), lease default and termination with damages, or automatic conversion to dark store rent (typically 125–150% of base rent). Courts are split on granting injunctions; the landlord's strongest practical remedy is a dark store rent provision or acceleration of the lease.
Courts are split. Traditional law disfavors compelling specific performance of ongoing business obligations, but courts increasingly grant injunctions where the lease includes "irreparable harm" language and where money damages are genuinely difficult to calculate. Including irreparable harm language is critical if a landlord wants injunctive relief as a practical option.
A dark tenant generates zero gross sales, eliminating percentage rent. More seriously, an anchor going dark typically triggers co-tenancy clauses for nearby tenants — reducing the landlord's rent income across the center. This cascading effect is why landlords fight so hard to enforce operating covenants against anchor tenants specifically.
Dark store rent automatically increases the rent rate (typically 125–150% of base rent) when a tenant goes dark for more than a defined period. It compensates the landlord without requiring litigation, creates a financial incentive to reopen or exit, and is the most practical modern remedy for going-dark violations.
Yes — many do, often referencing landlord-controlled "Center Hours." This creates unilateral power for the landlord to expand required hours over time. Tenants should push for fixed operating hours or a cap, with explicit carve-outs for emergencies, holidays, renovations, and closures required by law.
The operating covenant creates obligations that run in both directions. Landlords need tenants to operate to preserve property value, percentage rent income, and co-tenancy protections. Tenants need flexibility to manage their businesses, close loss-making locations without catastrophic lease liability, and protect themselves from being forced into unprofitable operations.
The best leases address this tension head-on: a strong operating covenant with meaningful carve-outs, a dark store rent provision that compensates without triggering full default, fixed operating hours, and a sales-performance escape valve give both parties certainty while preserving each side's ability to respond to real-world business conditions.
Use LeaseAI's AI-powered lease analysis platform to automatically identify operating covenant language in your lease, flag absolute vs. efforts-based standards, and spot missing carve-outs before you sign. Our red flags scanner specifically identifies aggressive continuous operations language — one of the most common sources of unexpected lease default exposure.
Related reading: Anchor Tenant Rights Guide | Personal Guarantee Negotiation | Triple Net Lease Explained