JJD-HOV Elk Grove, LLC v. Jo-Ann Stores, LLC

Opinion of the Court by Evans, J.

A cotenancy provision is a feature found in some commercial retail leases. These provisions typically allow retailers to pay reduced rent or terminate the lease when the number of anchor tenants (large retailers that are attractive to a broad range of shoppers) or the overall occupancy level of retailers in a shopping center falls below a specific threshold. Generally, courts endeavor to enforce contracts as the parties have written them. California Civil Code section 1671, however, prohibits the enforcement of liquidated damages provisions when they operate as unreasonable penalties for contractual breach.1 The issue in this case is whether a cotenancy provision that allows the tenant to pay a reduced rent when a shopping center’s number of anchor tenants or occupancy level of retailers falls below a specific threshold is valid as an alternative performance of the contract or whether it is a penalty subject to section 1671’s reasonability limitation. For the reasons discussed below, we affirm the judgment of the Court of Appeal and uphold the cotenancy provision in this case as reflecting the parties’ agreement regarding acceptable alternative…