What are the facts?
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.
What is the legal issue?
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?
What rule applies?
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.
What did the court hold?
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.
What is the reasoning?
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.
Why is this case significant?
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.
Does a percentage-rent clause automatically create a duty to operate?
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.
When might a court imply a continuous-operation covenant?
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.
What drafting lessons does the case provide for landlords?
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.
How does the implied covenant of good faith relate to this case?
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.
What remedies did the landlord seek, and why were they denied?
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.
How does Ganem fit within broader property and contract doctrines?
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.