Brief Fact Summary. This case is based on a lessor’s suit against a lessee of commercial realty, where the lessee discontinued its business prior to ending of the lease term and vacated the premises, but continued to pay the base rent and would not allow the sublease of the premises to another similar business.
Synopsis of Rule of Law. In the absence of any express or implied covenant of continuous operation in the lease, the Court will not substitute such a covenant when the intent of the parties is manifest in the plain language of the contract.
(1) the implication must arise from the language used or it must be indispensable to effectuate the intention of the parties; (2) it must appear from the language used that it was so clearly within the contemplation of the parties that they deemed it unnecessary to express it; (3) implied covenants can only be justified on the grounds of legal necessity; (4) a promise can be implied only where it can be rightfully assumed that it would have been made if attention had been called to it; (5) there can be no implied covenant where the subject is completely covered by the contract.View Full Point of Law
Issue. Does the lease contain any express or implied covenant of continuous operation such that the lease must terminate when the lessee discontinues its business on the premises?
Held. No. Judgment reversed.
The Court finds that the lease clearly did not contain any express provision regarding any duty of the lessee to maintain continuous operation of the premises as a grocery store.
The Court finds that the plain language of the contract contains a provision which is directly opposite of any covenant to maintain continuous operation. The language is as follows: “LESSEE’s use of the leased building . . . shall not be limited . . . to such purposes [supermarket], and said building . . . may be used for any other lawful business, without the consent of LESSOR” [emphasis in original]. Thus, the property could be used by lessee to any lawful purpose without having to ask the permission of the lessor.
There is no evidence in the lease to indicate an intention of the parties to create an implied covenant of continuous operation. The contract, read in total, indicates otherwise. The portion of the lease cited above which allows for free assignation by the lessee without the consent of the lessor runs contrary to the purpose of any implied covenant of continuous operation.
The provision in the lease for payment of a minimum base rent, in addition to the provision of rent as a percentage of gross sales, suggests the absence of any implied covenant of continuous operation. Because the parties did not specifically agree to a covenant of continuous operation, the Court could not substitute such an agreement.
Dissent. The dissent would hold that contract language provided that the lessee agreed to use the premises in any lawful business. Even though allowing the premises to sit vacant while paying rent is legal, it does not constitute a “lawful business.” Also, any ambiguity in contracts should be construed against the drafting party, here, the lessee.
Discussion. This case is an example of the necessity of re-drafting portions of leases from time to time. The lessor’s minimum base rent was at the level agreed to in 1964 some 28 years later. Of course, so long as the business was operated, the percentage rent of gross sales would climb, but the terms of the lease were unfavorable when the business discontinued.