Master Massachusetts high court refused to imply a covenant of continuous operation in a percentage-rent commercial lease absent express language. with this comprehensive case brief.
Stop & Shop v. Ganem is a leading Massachusetts decision on whether courts should imply a covenant of continuous operation into commercial leases that provide for percentage rent. The landlord argued that because rent was tied in part to the tenant's gross sales, the tenant had an implied duty to keep the store open and actively conduct business to generate those sales. The tenant countered that where the lease contains no such express term and provides a substantial fixed minimum rent, courts should not graft an ongoing business obligation onto the contract.
The Supreme Judicial Court's refusal to imply a continuous-operation duty has had a long afterlife in shopping-center leasing and percentage-rent jurisprudence. For law students, the case is a clear illustration of the caution courts exercise before implying covenants in commercial agreements, the interplay between property and contract doctrines in leases, and the drafting lessons for landlords who want to prevent a tenant from "going dark."
Stop & Shop, Inc. v. Ganem, 347 Mass. 697, 200 N.E.2d 248 (Mass. 1964)
The landlord, Ganem, leased commercial premises in a shopping-center setting to Stop & Shop, a large supermarket operator, under a long-term lease. The rent structure included a substantial fixed minimum rent plus additional rent calculated as a percentage of the tenant's gross sales from the premises. After operating a supermarket for a period of time, Stop & Shop ceased retail operations at the location (or otherwise used or arranged the space in a way that drastically reduced or eliminated retail sales). Although it continued to pay the fixed minimum rent and complied with the lease's express terms, its cessation of retail operations eliminated the landlord's percentage-rent income. The landlord sued, claiming the lease contained an implied covenant requiring Stop & Shop to continuously operate a supermarket or otherwise make bona fide efforts to generate sales, and sought injunctive relief or damages on the theory that the tenant's "going dark" breached that implied obligation. The trial court ruled for the tenant, and the landlord appealed.
Does a commercial lease that provides for percentage rent, in addition to a fixed minimum rent, include an implied covenant requiring the tenant to continuously operate its business on the premises to generate sales absent an express continuous-operation clause?
Courts will not imply a covenant of continuous operation in a percentage-rent lease absent clear contractual language or necessity to effectuate the parties' intent. An implied covenant arises only when indispensable to give the contract business efficacy and when it is so clearly within the contemplation of the parties that they deemed it unnecessary to express. The presence of a substantial fixed minimum rent strongly weighs against implying a duty to continuously operate, and courts are reluctant to impose open-ended personal service or operational obligations that the parties did not bargain for in express terms.
No. The Supreme Judicial Court of Massachusetts held that the lease did not contain an implied covenant requiring Stop & Shop to continuously operate its supermarket or otherwise generate sales. Because the lease provided for a substantial fixed minimum rent and lacked any express continuous-operation clause, the tenant did not breach the lease by ceasing retail operations while continuing to pay minimum rent.
The court emphasized that implying covenants is disfavored and appropriate only where necessary to give a contract practical effect. Here, the lease expressly set forth the rent structure, including a substantial, guaranteed minimum rent designed to allocate risk between the parties. The percentage-rent provision served as a potential upside for the landlord, not a guarantee that the tenant would operate perpetually. Reading a continuous-operation obligation into the lease would contradict the parties' decision not to include such a term and would create a difficult-to-police, ongoing duty akin to compelling personal services—something courts avoid. The court also noted that sophisticated parties negotiating commercial leases can and often do include specific continuous-operation or "go-dark" clauses when desired. The absence of such a clause, coupled with the security of a meaningful base rent, signaled that the landlord accepted the risk that the tenant might not maintain operations over the entire term. Thus, the landlord's expectation of continued percentage rent did not justify judicially rewriting the lease to add obligations the parties did not adopt.
Stop & Shop v. Ganem is a cornerstone case in commercial leasing and contract law. It teaches that percentage-rent structures do not, by themselves, create an implied duty to operate; if a landlord wants to prevent a tenant from going dark, the lease must say so expressly. The case underscores the limited role of implied covenants, the importance of minimum-rent provisions in risk allocation, and the judiciary's reluctance to impose ongoing operational duties without clear agreement. For law students, it is a prime example of how courts harmonize contract-interpretation principles with property-law concepts in modern commercial leasing.
No. Under Stop & Shop v. Ganem, a percentage-rent clause does not, by itself, imply a covenant of continuous operation. Courts look for express language or necessity to imply such a term. A substantial minimum rent strongly suggests the landlord knowingly accepted the risk that sales (and percentage rent) might fall to zero.
Courts are more receptive where the minimum rent is nominal, the lease's viability depends entirely on percentage rent, and the overall circumstances show the parties assumed continuous operation (e.g., a short-term lease with token base rent intended solely to capture sales). Even then, many courts still require explicit drafting to impose an ongoing duty.
If continuous operation is critical, include an express continuous-operation clause, define operating standards (e.g., hours, staffing, inventory), add remedies for going dark, and consider recapture or co-tenancy provisions. Reliance on percentage rent alone is insufficient to ensure operations continue.
Good faith cannot be used to add substantive duties the parties did not bargain for. In Ganem, the tenant's cessation of operations while honoring the lease's express terms and paying base rent did not constitute bad faith. Good faith polices performance of existing promises; it does not create new ones.
The landlord sought to enforce an implied duty to operate (through injunction or damages tied to lost percentage rent). The court rejected these remedies because there was no such implied duty; the lease already specified the tenant's rent obligations, which the tenant met by paying the minimum rent.
Ganem reflects the modern view of leases as both conveyances and contracts. Contract principles—especially the reluctance to imply terms and the emphasis on negotiated risk allocation—play a central role. It also highlights that commercial parties must draft expressly for operational obligations rather than rely on judicial implication.
Stop & Shop v. Ganem stands for the proposition that courts will not rescue a party from the foreseeable consequences of its own drafting choices in commercial leases. Where the parties agree to a rent structure with a substantial minimum and a contingent percentage component but omit an express continuous-operation clause, a tenant's decision to go dark does not breach an implied duty.
For practitioners and students, the case is a vivid reminder that commercial leases are carefully allocated packages of risk and reward. Judicial implication of covenants is exceptional, not routine; parties who want ongoing operational performance must negotiate, memorialize, and price that duty expressly.
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