California Court of Appeal

In this case, plaintiff challenges the enforceability of provisions in its commercial lease with defendant Ross Dress For Less. The provisions conditioned defendant's obligation to open a store and pay rent on Mervyn's operating a store in the shopping center on the commencement date of the lease, and also granted Ross the option to terminate the lease if Mervyn's ceased operations and was not replaced by an acceptable retailer within 12 months. The opening cotenancy condition was not satisfied, and Ross took possession of the space, never opened for business, never paid rent, and terminated the lease after 12 months. Judgment awarding damages for unpaid rent and damages caused by the termination of the lease is modified to award damages only for unpaid rent, where: 1) the rent abatement provision was an unenforceable penalty, as there is no reasonable relationship between $0 of anticipated harm and the forfeiture of $39,500 in rent per month; 2) the California courts have adopted a specific rule that holds no forfeiture results from terminating a commercial lease based upon the occurrence of contingencies that are agreed upon by sophisticated parties and have no relation to any act or default of the parties, and thus the termination provision did not constitute a forfeiture here; and 3) because no forfeiture occurred as a result of the termination, the termination provision did not create an unreasonable penalty.

Appellate Information

• Decided 01/12/2015
• Published 01/12/2015

Judges

• Franson

Court

• California Court of Appeal

Counsel