Construction & Contracts  ·  November 7, 2026

Your California Commercial Lease Has an Exclusive-Use Clause and the Landlord Leased to a Competitor. Now What?

You negotiated hard for one sentence in your lease: the landlord will not lease any other space in the shopping center for the sale of coffee. Two years in, a cafe opens three doors down. The landlord says the new tenant is a bakery, not a coffee shop; the bakery has an espresso machine and a drive-through. Your sales are off twenty percent.

Exclusive-use clauses are among the most litigated provisions in California retail leases, and the fights follow a pattern: what the clause actually covers, whether the landlord breached it or a "rogue tenant" did, and what the protected tenant can do about it. This article walks through the California law on each question, the remedies a tenant can pursue, the defenses a landlord will raise, and why the grocery covenant statute that takes effect in 2027 does not reach most exclusives.

What does an exclusive-use clause in a California commercial lease actually cover?

What the words say, read as the parties intended, and construed against the party who drafted it. Scope disputes are decided clause by clause, and California courts have read exclusives broadly when the tenant bargained for them.

Exclusive, use restriction, radius clause, co-tenancy

Four provisions do different work. An exclusive is the landlord's promise not to lease other space in the project for a described use. A use restriction limits what the tenant itself may do in its own premises. A radius clause restricts the tenant from opening another location within a stated distance, or occasionally restricts the landlord from developing competing property nearby. A co-tenancy clause ties the tenant's rent or right to stay open to other tenants being open; the California Supreme Court upheld one as a valid alternative-performance provision in JJD-HOV Elk Grove, LLC v. Jo-Ann Stores, LLC (2024) 17 Cal.5th 256. Only the first is an exclusive, and the remedies discussed here are for breach of that promise.

How California courts read the scope

In Kulawitz, the lease limited the tenant to a general furniture business and the landlord covenanted not to let other space in the building for a furniture store. The landlord then leased the adjoining store for the sale of linoleum and kindred products. The Supreme Court affirmed the finding of breach: linoleum was a significant item in furniture sales, and a covenant of this kind is breached if even one class of competing goods is sold in the other space (25 Cal.2d at pp. 673-674).

In Hildebrand, the landlord promised a pharmacy tenant that the supermarket in the center would not sell drugs, medicines or cosmetics. The supermarket stocked toothpaste, shampoo, soap and first-aid items. The Court of Appeal upheld the trial court's finding that those were within the restriction, relying in part on the supermarket's own conduct in pulling the items after complaints and on a letter in which it agreed not to carry conflicting goods (174 Cal.App.2d at pp. 165, 168).

In Carter v. Adler (1955) 138 Cal.App.2d 63, the tenant held an exclusive right to sell groceries, meat and produce in a Van Nuys market, with rent tied to gross sales. The landlord's successor bought the adjoining parcel and proposed a supermarket there. The court held that a landlord that grants an exclusive impliedly agrees not to defeat it by using adjoining property it controls in a way that substantially impairs the tenant's enjoyment of the premises, that building a competing supermarket next door would violate the covenant of good faith and fair dealing, and that because the lessors drafted the lease, ambiguities in the exclusive were construed against them and in favor of a broad reading (138 Cal.App.2d at pp. 70-73). The judgment declared that the lease barred the competing market.

The lesson for drafting is the lesson for litigating. Define the protected use by product and by percentage of sales or floor area, name the carve-outs for existing tenants and incidental sales, say whether the exclusive covers adjacent parcels the landlord later acquires, and say what happens if a tenant goes rogue. When the clause is silent, expect the court to ask what the parties meant and to hold the drafter to the ambiguity.

ROMO Law Group handles commercial lease and contract disputes throughout California.

Can a California tenant stop paying rent if the landlord breaches an exclusive?

Sometimes, if the breach is material and the tenant is not already in default. The leading case is more than eighty years old and still controls. But rescission is a one-way door, and it is not the only option.

Medico-Dental: the exclusive as a dependent covenant

In Medico-Dental Building Co. v. Horton & Converse, a drug store had operated on the ground floor of a Los Angeles medical building since 1925. Its 1934 lease ran sixteen years at a minimum rent of $600 a month plus a percentage of sales, and the landlord agreed not to lease other space in the building for a drug store or drug sales. In 1937 the landlord leased the entire ninth floor to a physician for a medical group, with a clause allowing drug dispensing in connection with treatment of his own patients. The physician obtained a pharmacy license and ran a drug room filling prescriptions for the group's many patients. The drug store protested in writing, gave the landlord time to fix it, was told nothing could be done, closed, rescinded in writing and vacated. The landlord sued for the rest of the rent.

The Supreme Court affirmed judgment for the tenant. A lease is both a conveyance and a contract, and its contractual terms are construed under ordinary contract rules. Whether covenants are dependent or independent turns on the intention of the parties and the good sense of the case; covenants that go to the whole consideration are mutual and dependent (21 Cal.2d at pp. 418-420). The exclusive here went to the whole consideration for the rent: the tenant's business depended on the building's physicians and their patients. The landlord itself leased the floor for a use the court found was a drug store, and knew the medical plan required one, so it could not plead ignorance. The breach was material, the tenant did not have to prove exact losses because the lost business was not easily susceptible of monetary estimate, and the tenant was entitled to elect rescission (pp. 424-434).

Kulawitz: the three options, and the default trap

Two years later the Supreme Court laid out the tenant's choices in Kulawitz. A tenant facing a breach of an exclusive may rescind, which ends its liability for future rent; may continue under the lease and sue for the profits lost; or may treat the breach as terminating its own performance obligations and sue for damages (25 Cal.2d at p. 672). The court also drew two lines that bite in practice. A tenant already in default on rent cannot rescind without first tendering the rent that accrued before the breach, because the breach does not excuse rent that was already due (p. 669). And where the landlord's breach is direct, as when the landlord itself signs the competing lease, the tenant need not give notice and an opportunity to cure before acting; notice and cure apply to indirect breaches by a competing tenant (pp. 672-673).

Why rescission is the risky choice

A tenant that vacates and stops paying rent is betting that a court will later agree the breach was material and the covenant dependent. If the bet loses, the tenant is the one in breach, and a California landlord's remedies after a tenant abandons, including, where the lease provides for it or the landlord has reasonably relet, rent for the balance of the term under Civil Code Section 1951.2, are substantial; our article on California landlord remedies when a commercial tenant walks out explains them from the landlord's side. The Medico-Dental tenant protected itself by documenting the protest, giving the landlord a chance to resolve it, and rescinding in writing only after the landlord said it could do nothing. That sequence is the model.

What remedies does a California tenant have against the landlord and the competing tenant?

Damages against the landlord, an injunction against the competitor (usually through the landlord's cross-complaint), and in the right lease, attorney's fees. A tenant that wants to stay typically sues for lost profits and an injunction; a tenant that wants out weighs rescission against those claims. Which combination makes sense depends on whether the tenant wants to stay and whether it is current on rent.

Damages against the landlord, including lost profits

In Hildebrand, the pharmacy sued the landlord and the supermarket. The trial court awarded $21,000 in lost profits against the landlord and gave the landlord a matching judgment against the supermarket's principals. On appeal, the landlord argued that it had relied on the supermarket's operators to work out their differences with the pharmacy. The Court of Appeal rejected the argument: the landlord's liability was "abundantly clear," the duty to keep the supermarket out of the pharmacy's line was the landlord's own, and it could not delegate performance to the very competitor the promise was meant to restrain (174 Cal.App.2d at pp. 164-165). On damages, the court applied the rule that where the fact of damage is established, the same certainty as to amount is not required, and a wrongdoer whose conduct makes damages hard to measure cannot escape liability on that ground; expert testimony and evidence of daily receipt declines after the competing sales began supported the award (pp. 166-167).

Lost profits still have to be proved with reasonable certainty; Civil Code Section 3301 bars contract damages that are not "clearly ascertainable in both their nature and origin." Sales records before and after the competitor opened, a comparison to the tenant's other stores or to the center's traffic, and an accountant's analysis of margin are the usual proof. The landlord will point to every other cause of the decline, and in Hildebrand the court treated competing causes as fact questions for the trial court.

Injunction against the competing tenant

A tenant usually cannot sue a cotenant for breach of the cotenant's lease, because it is not a party to it. But the landlord can, and a protected tenant can bring the landlord in. In Lewis v. Alpha Beta Co., the Lewises held the exclusive right to sell alcohol in a shopping center. When Alpha Beta, another tenant of the same landlord, announced it would sell liquor, the Lewises sued both; the landlord cross-complained against Alpha Beta, and the trial court enjoined Alpha Beta from selling alcohol for the term of its lease (141 Cal.App.3d at p. 32). The practical lesson is that a protected tenant's complaint should name the landlord and the competitor, plead the landlord's duty to enforce its other leases, and ask for injunctive relief, so that the landlord has every incentive to cross-complain.

A competitor that knew of the exclusive and leased anyway may also face a claim for intentional interference with contractual relations, which requires a valid contract, the defendant's knowledge of it, intentional acts designed to induce a breach or disruption, actual breach or disruption, and resulting damage; Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126. Whether the competitor knew is a question the tenant's estoppel certificate and the landlord's leasing file usually answer.

Attorney's fees

Most California commercial leases contain a prevailing-party attorney's fee clause, which Civil Code Section 1717 makes reciprocal. In Lewis, the court held that the protected tenants, who sued on their own lease to enforce an exclusive that the competing tenant's lease had assumed for their benefit, were entitled to fees under Section 1717 where both leases contained fee provisions, and that they had prevailed even though the injunction was formally entered on the landlord's cross-complaint (141 Cal.App.3d at pp. 33-34). Later decisions read the nonsignatory fee cases narrowly: in Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, the Sixth District held that a nonsignatory claiming as a third-party beneficiary recovers fees under a lease's fee clause only if the contracting parties intended to extend that right to someone in its position, and a party claiming fees under Section 1717 must show the other side would have been entitled to them had it won. Read both leases before filing; the fee exposure runs both ways.

Rent reduction and other negotiated remedies

Many modern exclusives specify the remedy: reduced rent for as long as a violation continues, and a right to terminate if it continues past a stated period. Those clauses are generally enforced as written. The Supreme Court's decision in JJD-HOV Elk Grove upheld a co-tenancy clause that dropped rent from roughly $36,500 a month to the greater of $12,000 or 3.5 percent of sales when the center's occupancy fell, treating the reduced rent as a valid alternative performance rather than a penalty, under a test that asks whether the landlord had a realistic and rational choice between the alternatives. A rent-reduction remedy for an exclusive violation is a different clause, and the court did not address exclusives, but the decision's emphasis on enforcing negotiated terms as the parties wrote them is the backdrop for any landlord argument that a bargained-for remedy is an unenforceable penalty.

Does California's new grocery covenant law affect exclusive-use clauses?

Only at the margins, and only for grocery uses. Civil Code Section 714.8, added by AB 1857 and effective January 1, 2027, voids a covered grocery-use restriction only when a grocery store on the property has ceased operations or is no longer operating in the center and an approved restrictive covenant modification document has been recorded. For everything else, from coffee to pharmacies to fitness, the common law described above still governs.

What Section 714.8 preserves

Subdivision (i)(1) expressly preserves an exclusive-use provision, radius restriction or similar covenant in a lease or sublease between a landlord and a tenant, to the extent it bars the landlord from leasing other space in the same project or center to a competing grocer, provided at least one grocery store is in actual operation in the center when enforcement is sought. Our article on AB 1857 and California grocery covenants explains the statute and its procedure.

Deadlines at a glance

What to do first

Read the exclusive and the competitor's publicly visible use side by side, and get the competitor's lease if you can; many centers' leases are cross-referenced in estoppel certificates and recorded memoranda. Send the landlord a written notice identifying the violation, demanding enforcement, and reserving all remedies. Start a sales log that day. Do not stop paying rent, and do not vacate, until a lawyer has evaluated whether the breach is material, whether the covenant is dependent, and whether you are current. If you are the landlord, the time to address a rogue tenant is before the protected tenant's lawyer does.

For how written lease terms are formed and modified by text and email, see California real estate contracts by text, email and DocuSign. If a competitor has opened in your center in violation of your exclusive, or you are a landlord facing a tenant's demand, contact ROMO Law Group with both leases and the sales history.

Common questions

This article is general information about California law as of November 7, 2026 and is not legal advice. It does not create an attorney-client relationship. Anyone facing a specific dispute should consult a lawyer about their own circumstances.

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