California Contract Law Update: Conditional Payment Clauses

Recent developments in California case law have strengthened the ability to enforce conditional or tiered payments in commercial contracts and leases.

Retail leases provide one common example of the contracting issue. Retailers frequently seek co-tenancy provisions in their shopping center leases, which address the amount of rent due in the event that occupancy changes in a center after the lease is entered. A co-tenancy provision often provides that if shopping center occupancy falls below a specified level, the retailer may be entitled to pay a lower amount of alternative rent. Conceptually similar provisions can also be found in other commercial contracts—any contract which provides for alternative compensation in the event that a condition is not satisfied.