## Facts

- Lessors leased commercial property at 154 Merrimack Street, Haverhill, Massachusetts, to Stop & Shop, Inc. for 13 years and 6 months beginning September 1, 1953.
- The lease required payment of a $22,000 annual minimum rent plus additional rent equal to 1.25% of gross sales above a stated threshold, subject to an overall sales condition tied to another store.
- The lease addressed taxes and sales-recordkeeping but did not require any specific use of the premises, continuous operation, or noncompetition.
- Stop & Shop operated a supermarket on the premises from 1953 through 1962 and paid percentage rent in only two years.
- Effective January 1, 1963, Stop & Shop decided to stop operating the supermarket at the premises but intended to continue paying minimum rent and other monetary obligations.
- Lessors claimed the parties expected continued supermarket operation and substantial percentage rent and alleged an implied promise to keep operating and not divert sales to competing stores.

## Issues

1. Whether a percentage lease with a substantial minimum rent includes an implied covenant requiring the tenant to continuously operate a supermarket on the premises for the lease term.
2. Whether the tenant breached any implied duty of good faith or contractual obligation by opening competing stores and closing the leased store while continuing to pay minimum rent.
3. Whether the lessors were entitled to reformation of the lease or damages based on alleged precontract representations about continuous operation and anticipated percentage rent.

## Decision

- The Supreme Judicial Court of Massachusetts affirmed a declaratory decree that the lease did not expressly or impliedly require Stop & Shop to use the premises for any particular purpose or to keep the store open and operating as a supermarket.
- The court held no implied continuous-operation covenant arose from the percentage-rent clause where the lease was otherwise complete and the minimum rent was substantial and not shown to be materially below fair rental value.
- The court held the lease did not restrict competition; Stop & Shop could open competing locations even if that reduced sales at the leased premises and reduced percentage rent.
- The court upheld dismissal of the lessors’ counterclaim seeking reformation and damages, concluding the pleadings and record did not justify rewriting the lease to add an omitted operating covenant.

## Legal Principles

- Courts will not imply covenants in a lease unless the implication is clear; omission of a term in an apparently complete written lease is evidence the parties did not agree to it.
- A percentage-rent provision does not, by itself, create an implied duty to continuously operate a business on the premises when the lease provides a substantial fixed minimum rent.
- The lessor bears the burden to show that the minimum rent is so far below fair rental value that the parties must have assumed continued operation in order to make the bargain sensible.
- Absent an express restriction, a tenant generally has no contractual duty to refrain from operating competing businesses, and reduced percentage rent alone does not establish bad faith when the tenant continues to perform express payment obligations.
- Reformation requires a showing that the written instrument fails to reflect the parties’ actual agreement; alleged expectations or prior statements cannot supply a missing covenant where the integrated writing omits it.

## Conclusion

The court held that a tenant under a percentage lease with substantial base rent could close its store and still comply with the lease by paying the minimum rent and other express charges, and that the lessors could not obtain an implied continuous-operation or noncompetition covenant, reformation, or damages based on unmet expectations of percentage rent.


Stop & Shop, Inc. v. Ganem, 347 Mass. 697, 200 N.E.2d 248 (1964)