JCPenney Litigation: How 2020 bankruptcy can still affect retail properties nationwide

A little more than a year ago, news broke of an upcoming sale of over 100 JCPenney stores for nearly $1 billion. That sale has now collapsed.

Litigation in courts across the country reveals that the seller and buyer each have their own version of the facts —and each accuses the other of wrongdoing. Though the actual facts remain contested, the dispute illustrates how failed retail transactions can affect commercial retail real property far beyond the immediate parties.

Transaction and Ensuing Litigation

On Aug. 25, the Copper Property CTL Pass-Through Trust filed suit in Massachusetts state court against Onyx Partners and its founder, Anton Melchionda, detailing the Trust’s allegations.

According to the complaint, the Trust was established in 2021 to liquidate a portfolio of 160 retail stores and six distribution centers received as part of JCPenney's 2020 Chapter 11 reorganization. By 2025, with 117 stores remaining, the Trust accepted Onyx's bid to purchase the portfolio for approximately $947 million.

Onyx represented that the acquisition would be all-cash and equity-funded, requiring no debt financing. But over the following seven months, Onyx allegedly cycled through multiple lenders, pivoted to a structure consisting almost entirely of debt, extended the closing deadline repeatedly, and ultimately failed to obtain the funds necessary to close by the final deadline of Dec. 22, 2025.

According to the Trust, even though Onyx lacked the funds to complete the purchase, Onyx filed 38 notices of pendency across four states shortly after the final closing date. These notices appear as quasi-liens on the properties in real property records. 

Onyx also launched litigation in multiple jurisdictions requesting that the Trust be compelled to consummate the sale, thereby clouding title and impairing the Trust's ability to sell the properties to another buyer. Notably, it is difficult to reconcile the Trust’s claim that Onyx lacked funding with Onyx’s litigation which contains a demand that courts order the Trust to close the sale.

Why This Type of Factual Litigation is Problematic

Litigation of this nature — where both sides offer contradictory accounts — is rarely quick or easy. Such disputes typically involve extended discovery, depositions, courtroom arguments, and potentially a trial. In a case involving hundreds of millions of dollars, if the parties do not settle before trial, the litigation could last for years. Yet it is unlikely that these JCPenney stores can continue operating indefinitely.

According to the Trust’s second quarter financials released on Sept. 16, the stores show an $11 million net loss over the past six months, compared with $41 million in net income for the same period in 2025. Though the second quarter showed improvement over the first the financial performance remains below prior-year levels.

The Trust’s stores appear to be at risk due to their declining financial condition, and their value in any future sale is further reduced by the pending litigation. JCPenney itself may not be the only party harmed by this litigation. Other tenants in the affected shopping centers may suffer from reduced foot traffic and the appearance of vacancy. Landlords may face not only reduced rental payments from Penney but also potential reduced rental payments from other tenants.

Co-tenancy Threat

Other tenants in the shopping centers where these JCPenney stores are located may have co-tenancy clauses. A co-tenancy clause is a provision in a commercial retail lease that conditions a tenant's obligations — typically full rent payment and continued operation — on the continued operation of specified anchor tenants or on maintaining a minimum occupancy threshold.

When those conditions are breached because an anchor tenant departs, goes dark, or ceases meaningful operations, the clause is triggered, typically entitling smaller tenants to reduced rent, percentage-of-sales rent, or outright lease termination.

For now, the stores continue to operate. But if prolonged litigation or market deterioration ultimately causes JCPenney to reduce operations or close locations, the co-tenancy dominoes may begin to fall.

Mortgage-Level Cotenancy Consequences

Co-tenancy risks extend to the debt side as well. Commercial mortgage-backed securities and other real estate lending instruments routinely incorporate co-tenancy provisions as loan covenants, meaning that landlords may find themselves in violation of their loan obligations.

Landlords may also feel the effect if they attempt to sell their properties. Lenders evaluating retail collateral assess the stability of a shopping center based, in significant part, on its tenants and the state of title to the real property. This creates a downward spiral: prospective buyers cannot close acquisitions, shopping center owners cannot refinance or sell their centers, and the capital markets that sustain retail real estate suffer.

Not Just JCPenney

This saga — from the 2020 bankruptcy through the failed sale and pending litigation — illustrates a broader vulnerability in commercial retail properties nationwide. The effects extend beyond JCPenney to reduced financial performance by other tenants, reduced rents to landlords, and potential defaults under bank loans. This cycle compounds itself, as each default or vacancy triggers further co-tenancy violations and valuation declines.

For the hundreds of shopping center operators, co-anchors, inline tenants, and mortgage lenders whose economic interests are intertwined with these 117 stores, the message is sobering: a single failed transaction, left to fester through litigation and market confusion, can unsettle retail property value far beyond the courthouse doors.