The Stop and Shop Companies, Inc. v. Cyktor

  • Opinion Date: July 16, 1997

LEASES; ASSIGNMENTS; SUBLEASES—A supermarket chain bought a group of leases from another supermarket chain. The subject lease was transferred by way of a sublease, because an assignment would have voided its valuable extension rights. Subsequently, renewal options in the sublease were exercised making the sublease coterminous with the lease itself. The Court ruled that this structuring made the sublease into an assignment and the original (selling) supermarket no longer had any rights under the lease.

A shopping center tenant sublet its premises, giving the subtenant the same extension options as were contained in the overlease. All options under the sublease were exercised so that the term of the sublease then matched the term of the overlease. Shortly thereafter, the subtenant and landlord made plans to expand the premises. The tenant sued to block the expansion, claiming it would violate the overlease. The subtenant moved for summary judgment, claiming that the sublease was, by operation of law, an assignment, thereby giving tenant no standing to enforce the terms of the overlease. Subtenant’s motion was granted, but the decision was later amended to reflect that tenant’s claim for reformation of the sublease was not dismissed. On appeal, the sole remaining issue was whether the sublease should be reformed to make it a true sublease and not an assignment.

The tenant argued that the sublease did not accurately reflect the parties’ intent to create only a sublease, and that there was mutual mistake as to the legal effect of the executed sublease. The United States District Court stated that reformation is a proper remedy when there is mutual mistake, but that there must be clear proof both parties were in agreement at the time of the writing, and that the writing failed to properly express that agreement. Testimony from a vice-president of the subtenant indicated an intent to acquire all of tenant’s rights in the overlease and convert the sublease into an assignment once the renewal options were exercised. Ostensibly, this had been done because had the sublease been initially structured as an assignment, the extension options in the overlease would have been automatically canceled. The District Court found that the tenant failed to produce any evidence rebutting this testimony. The Court conceded that the parties may have had independent misconceptions, but stated that reformation based on mutual mistake requires that both parties labor under the same misapprehension. Since the tenant failed to demonstrate mutual mistake, its motion for reformation of the sublease was denied.