A continuous operation clause (also called a 'keep-open' or 'continuous activity agreement' clause) requires a commercial tenant to operate their business from the premises during specified hours throughout the lease term. These clauses are most common in shopping centres and retail strips, where the landlord wants to maintain foot traffic. For tenants, a continuous operation clause can become a trap. If your business is struggling, you may be unable to reduce hours or temporarily close without breaching the lease — potentially triggering default provisions, percentage rent acceleration, or lease termination.
What is a Continuous Operation Clause?
A continuous operation clause is a lease provision that requires the tenant to keep their business open and operating during specified days and hours for the duration of the lease. It is designed to protect the landlord's investment in the overall retail environment and to prevent 'dark stores' that reduce foot traffic for neighbouring tenants.
Red flags to watch for
If the clause does not include exceptions for events beyond your control (natural disasters, pandemics, government orders), you could breach the lease by complying with a mandatory closure order.
Some clauses allow the landlord to calculate percentage rent as if the store were operating at peak sales during any period of closure. This can create enormous financial exposure.
A rigid clause that requires full operating hours regardless of market conditions can force a tenant to operate at a loss rather than risk default.
Some landlords require minimum staffing levels. If your business model changes or labour costs increase, this can be unsustainable.
If a brief closure triggers the landlord's right to terminate the lease or take over the premises without court proceedings, the risk is disproportionate.
A clause that treats any closure — even a single day for maintenance — as an immediate default is unreasonable.
Your legal rights
Continuous operation clauses are generally enforceable in US commercial leases, though courts in some jurisdictions have been reluctant to grant specific performance (i.e., forcing a tenant to keep operating). The landmark case is Columbia East Associates v Bi-Lo (1986, SC), which questioned whether specific performance is appropriate for keep-open covenants. The remedy is typically damages, not an injunction. State landlord-tenant statutes and the common law of contracts govern interpretation. The Uniform Commercial Code does not apply to real estate leases. Force majeure defences may apply depending on clause drafting and state law.
Questions to ask before you sign
- 1Does the continuous operation clause include force majeure exceptions?
- 2What are the landlord's remedies for breach — damages, rent acceleration, or lease termination?
- 3Is there a cure period before a closure becomes a default?
- 4Can I reduce operating hours with landlord consent if business conditions change?
- 5Does the clause survive an assignment or sublease?
- 6Are there minimum staffing or inventory requirements?
- 7How does the clause interact with the percentage rent provision?
Disclaimer: This guide is for educational purposes only and does not constitute legal advice. Contract law varies by jurisdiction and individual circumstances. Always consult a qualified legal professional before making decisions based on this information.