Rowe v. Great Atlantic & Pacific Tea Co., 46 N.Y.2d 62 (1978)
A covenant limiting the right to assign a lease will only be implied if it is clear that a reasonable landlord would not have entered into the lease without such an understanding, and failure to recognize such a covenant would deprive the landlord of the benefit of their bargain.
Summary
Rowe, the landlord, sought to prevent A&P, the tenant, from assigning its lease to Southland Corp. Rowe argued that the lease contained an implied covenant against assignment without the lessor’s consent because the rental included a percentage of gross receipts. The New York Court of Appeals held that no such implied covenant existed. The court reasoned that the base rent was substantial, the percentage clause was not a material part of the lessor’s fundamental expectations, and Rowe, an experienced attorney, could have negotiated an express restriction on assignment. The court emphasized that restrictions on the free alienation of land are disfavored and construed strictly.
Facts
In 1964, Robert Rowe leased property to A&P for a supermarket. The lease had a base rent of $14,000 per year for 10 years with renewal options, and no restrictions on assignment. In 1971, the parties renegotiated, resulting in a new 15-year lease with a higher base rent of $34,420 plus 1.5% of gross receipts exceeding $2,294,666. The lease still lacked any restriction on assignment. A&P later decided to close the store and assigned the lease to Southland Corp. Rowe objected, claiming A&P breached an implied covenant against assignment.
Procedural History
The Supreme Court dismissed Rowe’s petition, finding no bad faith and an unqualified right to assign absent express restrictions. The Appellate Division reversed, stating that the lower court placed too heavy a burden on the petitioner. The Appellate Division reasoned that the percentage rent clause indicated the landlord’s reliance on the tenant’s abilities. A&P appealed to the New York Court of Appeals.
Issue(s)
Whether a real property lease agreement, which includes a percentage of gross receipts as part of the rental payment but does not contain an express restriction on assignment, contains an implied covenant limiting the lessee’s power to assign the lease without the lessor’s consent.
Holding
No, because the base rent was substantial, the percentage clause was not a material part of the lessor’s fundamental expectations, and the landlord was an experienced businessman who could have negotiated an express restriction on assignment.
Court’s Reasoning
The court emphasized the principle of freedom of contract, subject to limitations like public policy and good faith. It noted that courts disfavor covenants restricting assignment because they restrain the free alienation of land. Such covenants are construed strictly, even if expressly stated. An implied limitation on assignment should only be recognized if failure to do so would deprive a party of the benefit of their bargain. The court distinguished this case from Nassau Hotel Co. v. Barnett & Barse Corp., 212 NY 568, where the landlord received only a percentage of gross receipts. Here, the base rent was substantial, and the percentage clause was triggered only after a high sales threshold. The court noted that Rowe was an experienced attorney who could have negotiated an express restriction on assignment. The court quoted Mutual Life Ins. Co. of N.Y. v. Tailored Woman, 309 NY 248, 253, stating, “such lack of foresight does not create rights or obligations”. The court stated, “It has long been the law that covenants seeking to limit the right to assign a lease are ‘restraints which courts do not favor. They are construed with the utmost jealousy, and very easy modes have always been countenanced for defeating them’ (Riggs v Pursell, 66 NY 193, 201)”.