Exclusive Use and Co-Tenancy Clauses in California Retail Leases: Scope, Breach, and Remedies

Last updated: November 2026. Reviewed by Pavel Kolmogorov, California business litigation attorney (State Bar No. 321018).

An exclusive use clause is a landlord's promise not to lease other space in a shopping center to a business that sells what the tenant sells. A co-tenancy clause ties the tenant's rent, or its duty to stay, to the presence of named anchors or a minimum occupancy. California courts treat both as ordinary contract terms. A breached exclusive can support damages, an injunction, and lease remedies. In 2024 the California Supreme Court upheld a co-tenancy rent reduction against a penalty challenge. Kolmogorov Law, P.C. litigates these lease disputes.

Call (909) 235-6116 or contact us online to discuss an exclusive that was violated or a co-tenancy clause that has been triggered.

What each clause does

Both clauses protect a retail tenant's sales from changes in the center around it. They work differently.

An exclusive is a covenant. The landlord promises that no other tenant in the center, or in a defined part of it, will operate the protected use. If the landlord signs a lease that violates the promise, the landlord has breached.

A co-tenancy clause is usually a condition. The lease does not promise that the anchor will stay. It says what happens to the tenant's rent or term if the anchor leaves or occupancy drops below a stated level. Nobody has breached when that happens.

The distinction drives the remedies. A broken promise supports damages and an injunction. A triggered condition gives the tenant what the clause provides, and courts have been asked whether that remedy is an unlawful penalty.

How courts read the scope of an exclusive

Scope is the first question. Does the clause protect a product, a category, or a primary use? Does it bind outparcels and later phases? Does it except existing tenants, large stores, or incidental sales? Must the protected tenant be open and free of default?

A Court of Appeal decision shows the approach. A jewelry store's lease said the center would hold no more than two jewelry stores. The landlord later built an addition and planned to lease space in it to other jewelers, arguing that the limit covered only the original mall. The court read the lease as a whole and resolved the uncertainty against the landlord that drafted it. It also relied on the implied covenant of good faith, and it held that the limit reached the expansion. (Edmond's of Fresno v. MacDonald Group, Ltd. (1985) 171 Cal.App.3d 598, 603-608.)

Our page on contract ambiguity explains the interpretation rules.

Remedies when the landlord breaks an exclusive

An injunction. A court may grant a final injunction to prevent the breach of an obligation where money would not afford adequate relief, or where the right amount of compensation would be extremely difficult to ascertain. (Civ. Code, § 3422.) In the jewelry store case the trial court found the tenant's damages extremely difficult to ascertain, and the injunction against leasing to other jewelers was affirmed. Our page on injunctions covers the early motion.

Damages. The measure is usually the profit lost to the competing store, which our page on lost profits addresses.

Lease remedies. An exclusive may carry its own consequence, such as reduced rent while the violation continues or a right to terminate. Check whether those rights depend on written notice and a cure period.

Co-tenancy clauses and the penalty question

Landlords have argued that a rent reduction triggered by an anchor's departure is a penalty, because it bears no relation to the tenant's actual loss. In December 2024 the California Supreme Court rejected that argument for the clause before it.

The lease let the tenant pay a lower substitute rent, or terminate, if the center's co-tenancy requirement went unmet for six months. The court held that the clause provided for alternative performance. The landlord had a realistic and rational choice: maintain the tenant mix and collect full rent, or accept a weaker center and reduced rent. The clause was therefore not a liquidated damages provision, and the court enforced the lease as written. (JJD-HOV Elk Grove, LLC v. Jo-Ann Stores, LLC (2024) 17 Cal.5th 256.)

Had the liquidated damages statute applied, the clause would still have been valid unless the landlord proved it was unreasonable when the lease was made. (Civ. Code, § 1671, subd. (b).) Our page on liquidated damages explains that test.

The decision does not validate every co-tenancy clause. The court distinguished an earlier Court of Appeal case that struck down a rent abatement where the landlord had no control over the named anchor. It expressed no view on whether that case was correct. How much control the landlord has over the trigger remains an open question.

If you are the tenant

• Find out what the new store sells, how much of its floor area the product takes, and when its lease was signed.
• Check the conditions on your own right, such as being open for business and free of default.
• Send written notice in the manner the lease requires, and calendar the cure period.
• Do not reduce your rent on your own unless the clause plainly allows it and its steps have been followed. A short payment can draw a three-day notice.
• For a co-tenancy failure, record the date each anchor closed and the occupancy level month by month.

If you are the landlord

Keep a current schedule of every exclusive in the center. Check it before each new lease and each consent to a change of use. When a co-tenancy notice arrives, test it against the clause: the trigger, the waiting period, and any right to substitute a replacement anchor.

What to bring to the first meeting

• The lease and every amendment, with the exclusive, co-tenancy, and notice clauses marked.
• The site plan or exhibit that defines the shopping center.
• What is known about the competing store or the departed anchor, with dates.
• Monthly sales figures for the two years before the event and since.
• Notices sent and received, and rent statements showing what has been paid.

Frequently asked questions

Our shopping center lease gives us an exclusive on coffee and the landlord just signed another coffee shop. What are our remedies?

You may have three. Under California law a landlord that leases to a business within your exclusive has breached the lease, which supports a claim for damages, usually measured by lost profits. A court may also enjoin the breach where money would be inadequate or too hard to measure. (Civ. Code, § 3422.) Your lease may add its own remedy, such as reduced rent. Give written notice first, exactly as the lease requires.

What is a co-tenancy clause in a retail lease?

It is a provision that links a retail tenant's obligations to the makeup of the shopping center. If named anchor tenants close, or occupancy falls below a stated level, the tenant may pay a reduced rent, terminate, or both, depending on the wording. The California Supreme Court has treated a negotiated co-tenancy clause as an allocation of risk between landlord and tenant and enforced it according to its terms.

Is a co-tenancy rent reduction an unenforceable penalty in California?

Not necessarily. In December 2024 the California Supreme Court upheld a clause that let a retail tenant pay substitute rent or terminate when the center's co-tenancy requirement went unmet for six months. The court held it was a valid form of alternative performance, so the liquidated damages statute did not apply. (JJD-HOV Elk Grove, LLC v. Jo-Ann Stores, LLC (2024) 17 Cal.5th 256.) A differently worded clause could be analyzed differently.

The anchor store in our center closed last year and our sales dropped. Can we pay reduced rent or leave?

Generally only if your lease says so. California law does not ordinarily reduce a retail tenant's rent because an anchor left. A co-tenancy clause can, and the state Supreme Court enforced one in 2024. Read the clause for the trigger, any waiting period, the reduced rent formula, the landlord's right to bring in a replacement anchor, and any deadline for electing to terminate.

Does an exclusive use clause cover a shopping center expansion?

It can. In a California case the lease limited the center to two jewelry stores, and the landlord planned to lease to other jewelers in a new addition. The Court of Appeal read the lease as a whole, resolved uncertainty against the landlord that drafted it, and held that the restriction reached the expansion. (Edmond's of Fresno v. MacDonald Group, Ltd. (1985) 171 Cal.App.3d 598.) The wording of each exclusive controls.

Talk to a California retail lease litigation attorney

If your landlord has leased to a store your exclusive forbids, or a tenant has invoked a co-tenancy clause, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. represents landlords and tenants of commercial property from its office in Irvine, California.

Related reading: our real estate litigation practice and the commercial lease disputes guide.

This page provides general information about California law and is not legal advice. Outcomes depend on the wording of the lease, the facts, and the court.