Go-Dark and Recapture Clauses

Commercial landlords and tenants should be familiar with “go-dark” and “go-dark-and-recapture” clauses in commercial leases. When a tenant “goes dark,” it has ceased operations in its leased space but is typically fulfilling all of its obligations under the lease. A tenant may choose to cease operations but continue under a lease for several reasons. For example, if a location is not profitable for a tenant, the tenant may determine that it will suffer less financial loss by paying just the rent and additional rent and going dark. A commercial tenant may be successful in negotiating a “go-dark” clause in its lease. A “go-dark” provision typically provides that ceasing operations in the space does not constitute a lease default.

Go-dark clauses present several issues for commercial landlords. A dark space, particular a dark anchor tenant, not only reduces traffic to the shopping center, but also projects a negative marketing image of a “dying” shopping center. If a tenant on a percentage-rent lease goes dark, the landlord’s rent from the space may, of course, be affected. Additionally, If a tenant has an exclusive in the shopping center, an entire product or service category will be absent in the shopping center.

I disagree with some practitioners who present the “go-dark-and-recapture” provision as merely a counter-offer to a tenant demand for a go-dark provision. A go-dark-and-recapture provision typically gives the landlord the option to recapture the space and terminate the lease if the tenant ceases operations for a certain period of time, such as 90 days. Terms of this provision vary by lease and the bargaining strength of the parties and include length of time before the option is triggered, what constitutes “ceasing operations,” and exceptions for certain types of closures, such as remodeling or store inventory.

The reason that I disagree that a go-dark-and-recapture provision is a possible counter-offer to a go-dark provision is that a go-dark provision is a more tenant-favorable agreement that the tenant may cease operations in the space. A go-dark-and-recapture provision, however, is a landlord-favorable agreement that the tenant may not cease operations in the space without risking a termination of the lease.

Including either provision in your lease opens the door to several associated issues, including exclusive uses clauses and percentage rent. Consider consulting with an attorney experienced in commercial leasing if either of these clauses is part of your lease negotiations.