## Facts

- A landlord leased the basement and first three floors of a Fifth Avenue building to a women’s apparel retailer under a percentage lease requiring fixed rent plus 4% of gross sales made “on, in and from the demised premises.”
- The percentage lease also required the store to carry “first class merchandise” and to be “conducted and maintained” in a manner “substantially similar” to the tenant’s prior store, consistent with a women’s apparel purpose clause.
- Years later, the parties executed a separate lease for part of the fifth floor at flat rent with no percentage-rent provision; it stated it would not interfere with the earlier lease and permitted sales of women’s merchandise without limiting type.
- The tenant moved its fur department from the percentage-lease floors to the fifth-floor flat-rent space and declined to pay percentage rent on fur sales made on the fifth floor.
- The landlord claimed (1) fifth-floor fur sales were sales made “from” the percentage-lease premises, and (2) moving the fur department violated an express or implied covenant against diversion of business from the percentage-rent space.
- The trial court largely accepted the landlord’s theory; the intermediate appellate court limited recovery to certain fifth-floor sales connected to the lower floors and rejected a breach theory based solely on relocation.
- The parties cross-appealed to the state’s highest court.

## Issues

1. Whether fur sales consummated on the fifth floor were sales made “from” the percentage-lease premises, making them subject to the 4% percentage rent.
2. Whether moving the fur department from the percentage-lease floors to the flat-rent fifth floor breached any express covenant (including “substantially similar” operation) or an implied covenant against diversion of business.

## Decision

- The court affirmed the intermediate appellate court’s judgment.
- The tenant owed percentage rent only for those fifth-floor fur sales that were effectively made “from” the percentage-lease floors—such as sales initiated by lower-floor staff who directed customers to the fifth-floor department.
- The tenant did not owe percentage rent on fifth-floor fur sales independently generated and completed on the fifth floor without a sufficient connection to solicitation from the percentage-lease floors.
- The tenant did not breach the “substantially similar” operation covenant or any implied covenant merely by relocating the fur department to other leased space in the same building.

## Legal Principles

- Percentage-rent language covering sales made “on, in and from” demised premises reaches off-premises or other-location transactions only to the extent the sale is sufficiently attributable to the demised premises (e.g., initiated by store personnel as part of the store’s selling activity).
- A court will not treat all sales in separately leased space as made “from” the percentage-rent premises solely because the spaces operate as a unified retail enterprise; the contractual trigger depends on the transaction’s connection to the demised premises.
- A covenant to operate a store in a manner “substantially similar” to a prior store, read with a purpose clause, may require continuity of the store’s general character but does not necessarily freeze departmental composition or bar relocation of departments absent clear language.
- In a commercial lease, obligations not stated in the contract will not be implied to rewrite the parties’ allocation of economic risk, particularly where the claimed restriction (such as a non-diversion promise) was not expressly included.

## Conclusion

The court enforced the percentage-lease terms as written: percentage rent was owed only for fifth-floor fur sales traceable to selling efforts on the percentage-lease floors, and no express or implied covenant barred the tenant from relocating the fur department to separately leased flat-rent space.


Mutual Life Ins. Co. of N.Y. v. Tailored Woman, Inc., 309 N.Y. 248, 128 N.E.2d 401 (N.Y. 1955)