The California Supreme Court has unanimously upheld a co-tenancy provision in Jo-Ann Stores LLC’s lease, affirming the craft retailer’s right to pay reduced rent at a Sacramento-area shopping center. The decision, issued Thursday, supports Jo-Ann’s ability to invoke the clause due to the mall’s failure to meet specific occupancy requirements.
The ruling affirms a 2022 appellate decision, confirming that Jo-Ann’s co-tenancy provision is an “alternative performance of the contract” rather than a penalty under Section 1671 of California’s Civil Code. That law restricts enforcement of liquidated damages clauses deemed unreasonable penalties for contract breaches. The court clarified that the provision allows Jo-Ann to comply with the lease by paying reduced rent when certain conditions are unmet.
Jo-Ann’s lease, dating back to 2004, includes a substitute rent clause triggered if the shopping center lacks either three anchor tenants or 60% occupancy. In 2018, Jo-Ann invoked this clause, marking its third use of the provision. While JJD-HOV Elk Grove LLC, the landlord, argued this constituted a penalty, the Supreme Court rejected the claim, emphasizing that the clause merely reflects a negotiated allocation of risks and benefits.
