Shopping Center Co-Tenancy Rent Abatement Isn’t an Unenforceable Penalty

What Happened: A shopping center tenant exercised its supposed right to pay reduced rent under a co-tenancy clause that kicked in when either: (1) the center lacked either three anchor tenants; or (2) 60 percent of the space wasn’t leased. While acknowledging that a trigger condition had occurred (that is, the closing of anchors Sports Chalet and Toys “R” Us), the landlord claimed the reduced rent was an unenforceable penalty, citing a 2015 California case called Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc. striking down a shopping center rent abatement co-tenancy clause triggered when an anchor didn’t move in.  

Ruling: The California Court of Appeal ruled that the co-tenancy rent cut was enforceable.

Reasoning: The co-tenancy clause in Grand Prospect was unenforceable because the amount of the rent abatement had no relationship to the losses the tenant incurred as a result of the landlord’s breach. By contrast, nobody in this case was claiming that the landlord was in breach because the two anchors closed. Rather than damages, the rent reduction was intended as a revised rent structure that the lease expressly provided for in the event the less-than-three-anchors contingency occurred. So, the Grand Prospect bar to enforcement didn’t apply.

• JJD-HOV Elk Grove, LLC v. Jo-Ann Stores, LLC, CA Courts of Appeal Cases from 1905 Court of Appeal of California, Third Appellate District, June 28, 2022, 2022 Cal. App. LEXIS 562