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Enforceability of Co-Tenancy Remedies
On Jan. 12, 2015, a California Court of Appeal, in Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc., 232 Cal. App. 4th 1332 (5th Dist. 2015), held unenforceable a co-tenancy provision in a retail lease that allowed the tenant to accept possession of the premises but thereafter have no obligation to pay rent or open for business, even though the provision had been negotiated by two sophisticated parties with leasing expertise. While the court noted that the determination of the enforceability of co-tenancy provisions depends heavily on the facts of the case, the Grand Prospect decision still provides useful guidance about the likely enforceability of remedies that are often negotiated into co-tenancy and other lease provisions.
Background
In Grand Prospect, the co-tenancy provision conditioned Ross's obligation to open its store and pay rent on Mervyn's operating a store in the shopping center on the commencement date of the lease. It also granted Ross the option to terminate the lease if the co-tenancy condition remained unsatisfied for a 12-month period. The lease did not provide the landlord with the option to replace Mervyn's to satisfy the opening co-tenancy condition; moreover, at the time the lease was executed, the landlord did not own the portion of the shopping center occupied by Mervyn's.
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