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Main Land Middlesex, L.P. v. The Great Atlantic & Pacific Tea Company, Inc.

A-5663-02T3 (N.J. Super. App. Div. 2004) (Unpublished)

LEASES; DAMAGES—Even though a tenant has a duty of good faith and fair dealing to operate its business in a way that enhances its percentage rent payments, a landlord can’t merely speculate that its tenant has changed its business practices in a way that would knowingly cause a drop in sales and therefore in percentage rent.

A supermarket tenant operated a shopping center anchor store pursuant to a long-term lease. Faced with a decline in sales, it temporarily closed its store, made renovations, and re-opened the supermarket store under a subsidiary’s tradename. The landlord then brought suit claiming that its tenant breached the lease’s implied covenant of good faith and fair dealing. Its theory was that, under the lease, increased sales meant increased percentage rent, and therefore a drop in sales would mean a decrease in rent. It theorized that the change of the supermarket’s tradename would result in a lower sales volume and thus lower rent. In response, the tenant argued that it would not have made over $800,000 in renovations if it did not expect an increase in sales volume. The lower court agreed with the tenant, and the Appellate Division affirmed, holding that the landlord had filed its complaint too soon, even before the new store was open for business. Even when the matter was heard by the lower court, the store had only been open for a short period of time. Consequently, the Court believed that the landlord failed to prove any damages. It also noted that the lower court’s grant of summary judgment in favor of the tenant did not prevent the landlord from seeking relief in the future if rent actually decreased as a result of the supermarket change.

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