Case Name: KROGER COMPANY v. BONNY CORPORATION
Court: Court of Appeals of Georgia
Jurisdiction: Georgia
Decision Date: 1975-04-22
Citations: 134 Ga. App. 834
Docket Number: 50368
Parties: KROGER COMPANY v. BONNY CORPORATION.
Judges: Bell, C. J., Quillian, Clark, Stolz, Webb and Marshall, JJ., concur. Pannell, P. J., and Evans, J., dissent.
Reporter: Georgia Appeals Reports
Volume: 134
Pages: 834–843

Head Matter:
50368.
KROGER COMPANY v. BONNY CORPORATION.
Argued February 26, 1975
Decided April 22, 1975
Rehearing denied May 15, 1975
Hansell, Post, Brandon & Dorsey, Gary W. Hatch, for appellant.
Alex McLennan, Scott Hogg, for appellee.

Opinion:
Deen, Presiding Judge.
1. The lease is on a printed form of Kroger Co. and contains an initial stipulation that it is "at a rental of $2,253 per month payable in advance by tenant." A typed paragraph at the end of the lease further states: "Tenant agrees to pay to landlord a sum of money equal of 1% of its sales in excess of of $2,704,000 per year, hereinafter called the minimum sales base" along with stipulations for figuring time and sales. A modification agreement dated in July, 1961, refers to the lease as "primarily covering a food store located at Chamblee Plaza Shopping Center," a fact not in dispute. A typed provision of the original lease guarantees that the lessor will not permit more than one other retail grocery store (to be occupied by Colonial Stores) and a delicatessen primarily interested in the sale of prepared foods in competition with the tenant. The lease at the time of the alleged breach had been in effect some thirteen years, for the first 12 of which sales were not in an amount sufficient to invoke the percentage rental clause denominated "additional rent." During the last year increasing sales resulted in an additional payment of $4,688.73 above the stipulated minimum. The question at issue is whether there is fairly to be implied a covenant on the part of the lessee to continue in business at the location stated throughout the lease period. The lease also includes a warranty by the lessor that the entire shopping center will be properly built and maintained. The only language restricting the tenant's occupancy is found in paragraph 8: "Tenant will use said premises in a lawful manner." Paragraph 31 specifically states that "the provisions of this lease shall bind and inure to the benefit of the parties hereto, their heirs . . . successors, and assigns."
We first consider the lease in the absence of aliunde evidence as to the intention of the parties to see whether the provisions as written are ambiguous, and whether they indicate a duty on the part of the tenant to continue in business for the duration of the leasehold. The lease is for more than five years, contains no provisions against assignment, and states that it shall bind the assigns of both parties. Certainly it must be considered, prima facie, as being assignable. See Warehouses, Inc. v. Wetherbee, 203 Ga. 483 (5, 6) (46 SE2d 894). This in itself weighs against an implied intent to require the tenant to continue in business throughout the term of the lease. The trial court correctly held the lease to be assignable. There is a strong implication in paragraph 8 that the tenant's use of the premises is not limited so long as it is conducted in a lawful manner. Nor do we find from the landlord's covenant not to place more than one competing grocery store in the mall (although this shows an implied understanding that Kroger was in fact intending to use the space for this purpose) any implied covenant on the part of Kroger to so use the space for the full term of the lease; a contrary inference might be drawn from the fact that an obligation in the area of competition is placed on one party but omitted on the part of the other. Considered without regard to aliunde facts, the lease places no burden on the tenant to occupy the premises, so long as the rent is paid. Nothing to the contrary is held in Daitch Crystal Dairies v. Neisloss, 8 AD2d 965 (190 NYS2d 737), which has to do only with the obligation of the landlord under such circumstances. Nor can a contrary conclusion be reached from Buford-Clairmont v. Jacobs Pharmacy, 131 Ga. App. 643, 646 (206 SE2d 674), stating that "in a shopping center such as existed here, tenants actively operate their business as a part of a whole enterprise," where the statement is drawn from application of a lease provision not present in this instrument that the tenant shall not "abandon or vacate the leased premises during the term." Again, while it is true that the landlord, as an inducement to the tenant at the time of signing the lease, agreed that if a minimum amount of footage in the shopping center was not rented when the premises became ready for occupancy the tenant had an option to cancel, and while such language does suggest that substantial occupancy is important to the success of the area, there is no equivalent suggestion that the tenant has a corresponding obligation to keep the demised premises occupied. The lease must be read in the light of what is omitted as well as what is required.
2. In attempting, however, to arrive at the true intention of the parties in entering into the contract, the court properly took into consideration the composition of the shopping center as a whole, the content of the leases entered into with other tenants, and the rental payments made over the years. From this it appears that the plan of the shopping center included four major stores and another two dozen small ones offering varied commodities. Of the major tenants, defendant was charged the most per square foot, at a rate which the landlord testified was "the basic standard thirteen years ago when the lease was negotiated." Colonial Stores first paid sales-percentage rent in the thirteenth year, the other two have never done so. Kroger's lease differs from Colonial's in that the latter may not use the premises for any purpose except that of a supermarket without written consent of lessor; Kroger covenants only that its purposes are lawful. The leases of most of the smaller tenants contain a provision that "lessee agrees not to abandon or vacate leased premises during the period of this lease" but none of the four primary tenants are so bound. The landlord does not contend that any of the lease provisions at issue are the result of fraud, mistake, inadvertence or a custom so universal as to be assumed on both sides. We may well assume, as pointed out in Buford-Clairmont, supra, that both parties understood the needs and purposes of shopping centers, the importance of representation, diversification, and substantial capacity rentals. Nevertheless, the present landlord and its assignor dealt with multiple leasings and multiple requirements. They were not overreached. They limited certain tenants to particular sales areas and not others; they required covenants against vacancy and abandonment of certain tenants and not of others. The leases were executed around the same time; it is therefore perfectly obvious that the landlord, in its individual dealings with separate tenants, tailored the leases according to the exigencies of the situation.
Does the formula for determination of rent require that the tenant not cease his business activities on the property? See 38 ALR2d, Anno. p. 1113 et seq., construction and application of provision in lease under which landlord is to receive percentage of lessee's profits or receipts. The general rule is, as there abstracted from Cousins Invest. Co. v. Hastings Clothing Co., 45 Cal. App. 2d 141 (113 P2d 878), and Masciotra v. Harlow, 105 Cal. App. 2d 376 (233 P2d 586), that "covenants would be implied only where the implication must arise from the language used or was indispensable to effectuate the intention of the parties, and that when the rental to be received under a lease is based on a percentage of the gross receipts of the business, with a substantial minimum, there is no implied covenant that the lessee will operate its business in the leased premises throughout the term of the lease." 38 ALR2d Anno. 1115, 1116. See also Hicks v. Whelan Drug Co., 131 Cal. App. 2d 110 (280 P2d 104); Food Fair Stores v. Blumberg, 234 Md. 521, 200 A2d 166; Stop & Shop, Inc. v. Ganem, 347 Mass. 697 (200 NE2d 248); Tuttle v. W. T. Grant Co., 5 AD2d 370 (171 NYS2d 954); Kretch v. Stark (Ohio) 92 Abs. 47 (193 NE2d 307); Weil v. Ann Lewis Shops, Inc., (Tex. Civ. App.) 281 SW2d 651. In both Sinclair Refining Co. v. Davis, 47 Ga. App. 601 (171 SE 150) and Sinclair Refining Co. v. Giddens, 54 Ga. App. 69 (187 SE 201) premises outfitted as a service station were rented for a designated sum of money per gallon of gasoline sold, with a stipulation that minimum rental would be not less than $10 per month. The cases indicate that this minimum was substantially below contemplated performance, and was therefore not "substantial." In the present instance two of the four main tenants have never increased sales so as to come within the "additional rent" base. Not only was Kroger's stipulated rent admitted to be a fair market value return at the time of the lease; the increase in the thirteenth year was a little over 1/6, or, if averaged over the period of lease up to that time, barely over 1% per year. The base rent was clearly stated at the beginning of the lease; the "additional rent" was a contingency without qualification added by paragraph 26. The Sinclair Refining Co. cases and the present one are at opposite ends of the spectrum.
Ingannamorte v. King Supermarkets, 55 N. J. 223 (260 A2d 841) and Lilac Variety, Inc. v. Dallas, Texas Co., (Tex Civ. App.) 383 SW2d 193 were cited by the trial court for the proposition that Kroger's presence in the shopping centrex might well be a factor in attracting business there, which is true, but these cases did not involve percentage rentals. The former involved a lease covenant for the store "to be used and occupied only for a supermarket" and the latter involved a commitment to a third party tenant as to the use of remaining property. In Slidell Investment Co., Inc. v. City Products Corp., (La. App.) 202 S2d 323, which otherwise supports the appellee's position, the base rental was only slightly over half of the total rental during occupancy, and this, with other particulars, caused the court to hold "that this lease agreement would not have been entered into had plaintiff not anticipated receipt of percentage rental." We do not reach the same conclusion under the facts of the case here. Carter v. Adler, 138 Cal. App. 2d 63 (291 P2d 111) holds that landlords who induced the lease by granting tenants exclusive handling of certain foods within the supermarket could not themselves compete on adjacent property. In Professional Bldg. of Eureka v. Anita Frocks, Inc., 178 Cal. App. 2d 276 (2 Cal. Rep. 914), the percentage rent formula was used as a criterion, and amounted to over 50%. Again, that case had an "exclusive occupancy and use" clause. Somewhat the same situation adheres in Simhawk Corp. v. Egler, 52 Ill. App. 2d 449 (202 NE2d 49). The tenant agreed to use the premises only for sale of shoes (breached when he ceased operations and moved to a store two doors away) and the percentage rental was at least equal to the base rent.
The lease under consideration, considered either singly or in connection with other evidence regarding the operation of the shopping center, placed no obligation on the tenant to continue the operation of a supermarket on the premises for the full term of the lease. Accordingly, the appellee landlord would not be entitled to damages so long as the minimum rent continued to be paid.
Judgment reversed.
Bell, C. J., Quillian, Clark, Stolz, Webb and Marshall, JJ., concur. Pannell, P. J., and Evans, J., dissent.