When a store exercises its good guy clause by serving the landlord the good guy notice, it often wants to close during the notice period. This would not be allowed under a “go dark” provision; it would put the Tenant in default of its lease during the good guy notice period, nullifying the good guy’s terms.
“Go Dark” covenants in retail leases are standard and generally agreed to without much negotiation. These clauses state that the store must keep regular hours and cannot close for long. The periods can be as short as a week or two. These provisions are more important than ever. In this post-pandemic environment, some stores have found it is too expensive to operate but must continue to pay rent after their closure.
“Go Dark” Clauses would not apply if the Tenant is mandated to close according to an executive order. Once that order is lifted, the Tenant must reopen regardless of the changing business climate. Most landlords have worked with their retail tenants during COVID and its aftermath. Regardless, tenants should not “go dark” without a written agreement from the landlord. Landlord-Tenant Judges in evictions may be sympathetic to the Tenant’s plight, but they will apply the law. A commercial tenant is considered a sophisticated party with negotiating power equal to the landlord. A retail tenant will be held strictly to the terms of its lease.
In two recent court cases that involved national retailers, the Courts issued preliminary injunctions ordering the stores to keep operating. The Court, in one case, instructed a retailer to continue operations. In the other case, the store actually had to reopen after closing.
One case involved Starbucks “Teavana” Stores in malls. With injunctions, the Court weighs the potential harm to each party and each party’s chance of success in the litigation. The mall landlord sued to enforce its “continuous operations” clause. Anchor stores demand a curated mix of stores in their mall setting. It is generally in their leases, so Landlords must enforce the smaller Tenant’s continuous operation clauses.
These rulings were in state court and may be anomalies, but a retail tenant would still do well to look closely at the “go dark” clauses when negotiating its lease.