In May 1971, The Great Atlantic and Pacific Tea Company ("A & P") entered into a lease ("Overlease") with S & H Shopping Center, Inc. ("S & H) for a supermarket premises. The Overlease was amended by letters and other agreements from 1972 through 1992.The lease provided that A & P was required to pay the overlandlord a fixed monthly rent, as well as certain additional amounts and charges, including real estate taxes ("RET"), common area maintenance charges ("CAM"), and annual percentage rent.

During the late 1980s A & P acquired both the Shopwell and Waldbaums supermarket chains. As a result of these acquisitions A & P became the operator of all three supermarkets in the Yorktown Heights area. When the Attorney General of the State of New York learned of this situation it contacted A & P and as a result of negotiations between the Attorney General and A & P, A & P agreed to sublease the premises to an unrelated supermarket.

On July 23, 1992, the plaintiff 380 Yorktown Food Corporation ("Food Corp."), and the defendant Great Atlantic & Pacific Tea Company, Inc., entered into a commercial sublease ("the sublease") for a supermarket located in Yorktown Heights. The sublease called for the payment by the Food Corp., on a pass-through basis, of any RET and CAM charged by the overlandlord pursuant to the overlease. The sublease also provided for the payment by Food Corp. of annual percentage rent.

The sublease contained a noncompetition provision prohibiting the A & P or any subsidiary or affiliate from opening a "store" within a designated "Trade Area" during the term of the sublease. In the event the A & P breached that provision, the sublease provided that Food Corp. would be entitled to reduce its rent payments to $8,750 per month.

At the time the sublease was entered into, the A & P also held the lease to a property across the street from the subject premises. A & P had operated that property as a Shopwell supermarket until the building was condemned as a result of structural defects.

From 1992 through 1998, Food Corp. paid no rent whatsoever and A & P took no action to collect rent or other amounts due under the sublease. In or about September 1998, with full knowledge that A & P intended to open a new Food Emporium at the location of the former Shopwell supermarket across the street, Food Corp. approached A & P and proposed certain amendments to the sublease, including significant financial concessions.

On November 17, 1998 Food Corp. and A & P entered into a "Modification of Sublease Agreement," which included, in relevant part, a new fixed rent payment schedule, effective January 1, 1999, calling for substantially reduced monthly rent payments of $7,500 (inclusive of CAM and RET) throughout 1999, increasing to $14,500 per month (exclusive of CAM and RET) beginning January 1, 2000, and increasing thereafter at the rate of $0.50 per square foot during each successive [*2]renewal period. In addition, the A & P forgave Food Corp'.s nonpayment of rent in the amount of $1.3 million and other charges during the first seven years of the sublease. In return, A & P obtained a slightly reduced sales base for the calculation of annual percentage rent from $7.5 million to $ 7 million. The sublease otherwise remained in full force and effect. The modification agreement made no mention of whether A & P's proposed opening of the Food Emporium constituted a breach of the sublease's noncompetition provision. In fact, paragraph 8 of the modification provides, in relevant part, "the parties confirm, agree and represent that there is no default [under the terms of the sublease] by Sublandlord or Subtenant and neither Sublandlord or Subtenant has received any notice of default under the Overlease."

Three days later, on November 20, 1998, Food Corp. entered into a sub-sublease agreement with Turcos, another supermarket, for the subject premises.

In 1999, A & P opened its Food Emporium store and, throughout 1999, Food Corp. paid the reduced monthly rent amount of $7,500 as contemplated in the sublease modification. Beginning in January 2000, however, Food Corp. paid the A & P only $8,750 per month in fixed rent, instead of the $14,500 called for in the modification agreement. Food Corp. continued paying that reduced monthly amount until at least December 19, 2003, when A & P sent Food Corp. a demand letter seeking payment of $547,721.47 in unpaid fixed and additional rent under the sublease, as amended by the modification agreement. This litigation followed.

Food Corp. contends, inter alia, that it was entitled to pay only $8,750 in monthly rent because A & P's opening of the Food Emporium store in 1999 constituted a breach of the noncompetition provision contained in the sublease. A & P, in turn, contends that there was no breach because the Food Emporium merely replaced the Shopwell store previously operated by A & P on that site. A & P maintains that it is therefore entitled to the full fixed rent amount provided for under the modification agreement as well as percentage rent, water charges and legal fees.

A non-jury trial was held on November 22, and 23, 2010 and the parties were thereafter afforded an opportunity to make written submissions. Four witnesses testified at trial.

Richard Scola, a former employee of A & P's legal department, testified that he met with Joe Friedman, principal of Food Corp., in connection with Food Corp.'s sublease with A & P. Scola testified that at the time the sublease was entered into the former Shopwell store was located within the restricted trade area. At that time, it was being torn down and replaced with a Food Emporium. Scola testified that at the time of the execution of the sublease, he had discussions with Friedman regarding the Shopwell location. Scola testified that it was the understanding of the parties that the Food Emporium was not a new store, but merely replaced the old Shopwell which was torn down due to structural defects.

With respect to the sublease modification, Scola testified that the modification changed the fixed rent schedule. Notably, there was no provision in the modification for a rent reduction based upon the "Trade Area" restriction. According to Scola, it was A & P's understanding that the "Trade Area" restriction no longer applied and in consideration for eliminating that provision A & P waived $1,300,000.00 in past due rent. Further, Scola testified that at no time during the modification negotiation process [*3]did Friedman inform A & P that he was negotiating a sub-sublease with Turcos.

Scola testified that Friedman told him during negotiations that he wanted to remodel his store so that it could compete with the Food Emporium. Notably, the sublease modification was signed November 17, 1998 and Friedman entered into the sub-sublease with Turcos on November 20, 1998.

According to Scola, the failure of Food Corp. to report its sales figures prevented A & P from collecting any percentage rents pursuant to the sublease. Mr. Scola testified that it is clear from the language of the sublease, that percentage rent was based upon the sales figures of the operating entity, in this case Turcos. Therefore, Food Corp.'s rent was based upon Turcos's sales figures.

Scola acknowledged that Food Corp. did not pay rent to A & P for six years after the sublease was signed. He also testified that there were additional billing oversights by A & P. Notably, A & P did not bill Food Corp. for additional rent from 2000 through 2003. When the oversight was discovered, Food Corp. was sent a default notice on January 5, 2004. A & P had not billed Food Corp. for the difference in rent it believed was due for the previous 4 years.

Joseph Friedman, owner and president of Food Corp., testified that he had a personal relationship with Scola and had known him for many years. Friedman stated that he knew about the replacement Food Emporium while he was negotiating the sublease modification. Friedman acknowledged that Food Corp. did not pay additional rent to A & P after the execution of the sublease modification.

Friedman testified that during the modification negotiations, there was no discussion regarding the removal of the "Trade Area" restriction. Further, it was his understanding that if Food Corp. sub-sublet to Turcos the gross receipts provision for percentage rent in the sublease would refer to the rental payments received by Food Corp. from Turcos, not to Turcos' gross sales. Therefore, since the rent received by Food Corp. from Turcos did not exceed $7 million per year, the threshold amount to trigger percentage rent, Food Corp. did not owe A & P any percentage rent.

Preston Turcos, a principal of Turcos, testified that he had been in negotiations with Friedman regarding the sub-sublease beginning in June 1998. He also confirmed that A & P was not notified of these negotiations. Turcos brought with him a document which contained gross sales receipts from 2003 to 2009. Turcos testified that these documents were provided to Food Corp. on an annual basis.

Joanne Wiseberg, an A & P lease accounting analyst testified that Food Corp. owes $1,129,176 in rent exclusive of percentage rent, $8,334 for equipment and water charges in the amount of $133,611.04.

A.Was the Opening of the Food Emporium a Breach of the Sublease as Modified by the 1998 Modification Agreement?

It is undisputed that as part of the sublease agreement, A & P agreed not to open a store in the "Trade Area." There is also no dispute that the Food Emporium was opened in 1999 across the street from the leased premises at the site of the former Shopwell location.

A & P argues that the language of the sublease should be read to mean opening [*4]a "new" store not a store which is merely a replacement for the closed Shopwell store. Therefore, according to A & P, the opening of the Food Emporium was not a violation of the sublease and the lower rent of $8,750.00 set forth in paragraph 18 of the sublease agreement does not apply.

Food Corp. argues that the opening of the Food Emporium triggered paragraph 18 of the sublease. Therefore, its rent should be fixed at $8,750.00, not $14,500.00 the rent, listed on the sublease modification agreement which modified the basic fixed rent of the sublease.

The Court agrees with Food Corp. The word "store" means "store" regardless of whether it is a "replacement" store or a "new" store. Thus, there was a breach of the sublease when A & P opened the Food Emporium. However, the sublease was modified in November of 1998. At that time Food Corp. was fully aware of the opening of the Food Emporium across the street and the November 1998 lease modification does not include any restriction regarding A & P opening a store in the "Trade Area." Moreover, paragraph 8 of the sublease expressly provides "the parties confirm, agree and represent that there is no default thereunder by Sublandlord or Subtenant . . . (emphasis supplied)" Thus, to the extent that A & P was in default under the terms of the sublease by opening the Food Emporium in the "Trade Area," that default was waived by paragraph 8 of the November 20, 1998, modification to the sublease.

Therefore, pursuant to the terms of the modification of the sublease, the new fixed rent contained in the modification due and payable by Food Corp. commencing January 1, 2000 was $14,500 through June of 2002 and then $15,836.58 commencing on June 30, 2003 through June 29, 2007, and thereafter pursuant to the fixed rent schedule of the November 17, 1998 modification. Likewise, Food Corp. is liable for RET and CAM charges commencing January 1, 2000 through the remainder of the term of the sublease.

B. Was A & P's Failure to Collect Rent from 2000-2004 a Waiver of its Right to Collect Under the Sublease Modification?

Food Corp. contends that A & P's failure to collect the full amount of rent and accept only $8,750.00 per month from 2000-2004 constitutes a waiver of its right to collect the difference between the $8,750.00 and the fixed rent due pursuant to the modification of the sublease.

"A waiver is the voluntary abandonment or relinquishment of a known right. It is essentially a matter of intent which must be proved" (Jefpaul Garage Corp. v. Presbyterian Hosp. in City of New York, 61 NY2d 442, 474 N.Y.S.2d 458 [1984] citing Alsens Amer. Portland Cement Works v Degnon Contr. Co., 222 NY 34, 37; Beacon Term. Corp. v Chemprene, Inc., 75 AD2d 350; 22 NY Jur 2d, Contracts, §330, p 212). While waiver may be inferred from the acceptance of rent in some circumstances, it may not be inferred to frustrate the reasonable expectations of the parties embodied in a lease when they have expressly agreed otherwise. (Id.).

When the language of the lease is clear and unambiguous and the parties having mutually assented to its terms, a non-waiver clause should be enforced to [*5]preclude a finding of waiver of the conditions precedent to renewal. (Id.; see also Matter of Wil-Low Cafeterias v 650 Madison Ave. Corp., 95 F2d 306, cert den 304 US 567; Brainerd Mfg. Co. v Dewey Garden Lanes, 78 AD2d 365, app dsmd 53 NY2d 701). This is especially true in a commercial lease situation where sophisticated the parties negotiate the terms of the lease or sublease as in this case.

Here, the language of the sublease expressly includes a non-waiver clause as well as a provision that upon default, landlord's acceptance of a partial payment does not waive its rights to pursue other remedies.

Paragraph 6(E) of the sublease provides, in relevant part:

No endorsement or statement on any check or accompanying any payment shall be deemed an accord and satisfaction and any payment accepted by Sublandlord shall be without prejudice to Sublandlord's right to obtain the balance due or pursue any other remedy available to Sublandlord both in law and equity. (Emphasis added)

Paragraph 22 of the sublease provides:

22. Waiver. One or more waivers of any covenant or condition by Sublandlord shall be not construed as a waiver of a subsequent breach of the same or any other covenant or condition and the consent or approval by Sublandlord to or of any act by Subtenant requiring Sublandlord's consent or approval shall not be construed to waive or render unnecessary Sublandlord's consent or approval to or of any subsequent similar act by Subtenant.

Further, paragraph 9 of the November 17, 1998 modification of the sublease states:

8. Lease Confirmation. The Sublease, as amended pursuant to this Agreement, remains in full force and effect and is hereby ratified and approved, and the parties confirm, agree and represent that there are no default thereunder by Sublandlord or Subtenant and that neither Sublandlord nor Subtenant shall receive any notice of default under the Overlease. (Emphasis added)

Moreover, Food Corp. has offered no proof that A & P intended to voluntarily abandon or relinquish it's right to collect the full fixed rent from 2000-2004.

Thus, based upon Food Corp's failure to prove A & P waived its right pursuant to the sublease and upon the clear and unambiguous language of the sublease and its November 17, 1998 amendment, A & P's failure to collect the full fixed rent from 2000 - 2004 did not constitute a waiver of A & P's right to collect the difference between what Food Corp. paid, to wit, $8,750.00, and what it owed A & P pursuant to the fixed rent schedule of the sublease modification.

C. What is the Percentage Rent Due Under the Sublease Modification?

Rider No.3 to the overlease requires an additional rent payment rent equal to 2% [*6]of all sales greater than $7.5 million^[FN1]. The term "sales" used in this rider is defined as "the gross receipts of LESSEE in and from the demised premises" excluding various expenses, taxes, etc.

A & P claims that pursuant to the overlease, Food Corp. owes as rent 2% of sales in excess of $7 million as defined by the overlease.

Food Corp. disagrees. It claims the modification agreement requires 2% of gross rent receipts from Turcos greater than $7 million, not sales. According to Food Corp., since it never had gross rent payments from Turcos in excess of $7 million no percentage rent is due to A & P.

In support of its argument, Food Corp. relies upon 45-02 Food Corp. v. 45-02 43rd Realty LLC, 37 AD3d 522, 830 N.Y.S.2d 304 [2nd Dept 2007]). The underlying facts of 45-02 Food Corp. are similar to this case. Following a series of assignments, the 45-02 Food Corp's plaintiff acquired the tenant's interest in the lease, and 45-02 Food Corp.'s defendant acquired the landlord's interest. In 1995, the plaintiff ceased its supermarket operations at the premises, and entered into a sublease with Rite Aid of New York, Inc. When the Percentage Rent provision of the original lease went into effect after January 31, 1999, the plaintiff took the position that this provision required the Percentage Rent to be calculated only upon its own gross receipts, i.e. rental income from the sublease paid to it by Rite Aid, but not upon Rite Aid's gross receipts from sales at the premises. The defendant notified the plaintiff that it was terminating the lease for nonpayment of Percentage Rent, and the plaintiff commenced an action for a judgment declaring the rights of the parties under the original lease. The Supreme Court held that the plaintiff's Percentage Rent obligation must be calculated on the basis of Rite Aid's gross sales, but that the plaintiff could offset, against that obligation, any real estate taxes paid by Rite Aid.

In reversing that portion of the Supreme Court's order, the Appellate Division stated, in relevant part:

Here, subparagraph 4 (b) of the lease defines the term "Gross Sales" as "the gross receipts of Tenant in and from the Demised Premises" (emphasis added). Additionally, subparagraph 4 (d) states that the "Tenant" is responsible for submitting a statement "of the Gross Sales' achieved by the Tenant" at the premises (emphasis added). Contrary to the defendant's contention, "Tenant" is not a generic term denoting any entity conducting sales on the premises. The term "Tenant," as used in the lease, and as defined in the preamble to the lease, refers specifically to Bohack, and does not include subtenants. The language of the lease indicates that the intent of the original parties to the agreement was to limit the basis for Percentage Rent to Bohack's receipts. Because Bohack's interest in the lease was assigned to the plaintiff, the lease limits the basis of the Percentage Rent calculation to the plaintiff's gross receipts "in and from" the premises, and does not require the plaintiff to pay Percentage Rent based upon Rite Aid's sales at the premises. [*7]

The defendant's argument that the sales of a subtenant are not listed among the exclusions from "Gross Sales" set forth in subparagraph 4 (b) ignores the fact that the precise definition of "Gross Sales" provided by the lease already restricts "Gross Sales" to the gross receipts of the "Tenant." Under this definition of "Gross Sales," a subtenant's sales are automatically excluded by the scope of the term as defined by the lease.

The defendant's contention that the original parties to the lease intended to guarantee that Percentage Rent based on all sales at the premises would serve as an upward adjustment to the fixed annual rental is not supported by the language of the agreement. Subparagraph 4 (a) states that Percentage Rent is equivalent to "the amount, if any" by which 1 1/4% of the gross sales exceeds the fixed annual rent (emphasis added), and subparagraph 4 (d) states that within 60 days of the end of the lease year, the Tenant is to submit the percentage rent "to which Landlord shall be entitled, if any, for said expired year" (emphasis added). Additionally, Bohack was not required to maintain a retail operation on the premises; paragraph 5 of the lease permits the Tenant to use the premises "for any lawful purpose." Together, these provisions indicate that both parties entered into the original agreement contemplating the possibility that the fixed annual rental might not be supplemented by Percentage Rent payments based on sales at the premises.

Here, however, the provisions of the overlease and sublease are very different than the terms of the lease in 45-02 Food Corp. First, paragraph 1 of the sublease provides, in relevant part, "Sublandlord hereby sublets the Premises to Subtenant for use only as a supermarket and for no other purpose or purposes." Thus, it is clear that the intent of the parties was that the premises would only be used as a supermarket and that percentage rent due would be based upon the gross receipts of that supermarket.

Moreover, the lease in 45-02 Food Corp. expressly states that the amount of percentage rent was the equivalent to "the amount, if any, by which one and one quarter percent (1 1/4 %) of the gross sales . . " Thus, it is clear that the parties to the original lease in 45-02 Food Corp. contemplated a situation where there may not be gross sales. Here, however, the words "if any" are absent from Rider #3 of the overlease which sets forth the percentage rent amounts, indicating that the parties expected that at all times the premises would be generating "sales."

Further, the plaintiff and defendant in 45-02 Food Corp. are the assignees of the

original lease. Here, however, A & P's and Food Corp's rights and obligations are defined not only by the original (the overlease) but also by their sublease. The sublease clearly and unequivocally states that the premises is to be used only as a supermarket. While Food Corp. argues, as did the tenant in 45-02 Food Corp., that it was the intent of the parties to the original lease that govern, such an argument is inapplicable here, since A & P and Food Corp. entered into their own sublease, and the subsequent modification, and are bound by the terms of those documents. Thus, the only sub-subtenant allowed on the premises is a supermarket and the percentage rent is based upon the supermarket's "sales" as defined by the overlease. [*8]

Accordingly, the Court finds the holding in 45-02 Food Corp. not controlling and inapplicable to the facts of this case.

Moreover, the fact that Food Corp. entered into a sub-sublease with Turcos does not alter the lease obligations Food Corp. agreed to in its sublease as modified with A & P. The sub-sublease references the sublease and acknowledges that it is subject to its terms. The sub-sublease adds a rider dealing with percentage rent between Food Corp. and Turcos, which requires a percentage rent of 2% of all sales greater than $20 million as the term "sales" is defined in the sub-sublease. However, A & P is not a party to the sub-sublease. Thus, it did not agree to any change in the definition of the term "sales." Food Corp. was free to enter into a sub-sublease containing any terms it wished, however, the terms of the sub-sublease do not effect Food Corp.'s obligation to A & P pursuant to the sublease.

Accordingly, the fact that the definition of the terms "sales" and "sales base" in the sub-sublease is different than in the sublease is not relevant or applicable in this case between A & P and Food Corp. Notably, under the terms of the sublease, a transfer of possession of the premises to Turcos pursuant to a sub-sublease was allowed upon 30-days notice to A & P, although A & P's approval was not needed. Nevertheless, A & P was not notified of the change in possession of the premises.

Here, although, A & P did not need to consent to the assignment of the sublease to Turcos, it is not bound to accept the change to the sublease made by Food Corp. The Court finds that Food Corp. is bound by the definition of the term "sales" in the overlease which is referred to in the sublease as modified by the November 1998 modification. A & P is not bound to the definition of "sales" as defined in the sub-sublease since Food Corp. could not change the terms of the sublease without the approval of A & P.

Therefore, based upon the clear language of the overlease and sublease as modified in November 1998, the intent of the parties was that additional percentage rent is due and owing to A & P in the amount of 2% of the gross sales of the supermarket tenant, Turcos, in excess of $7 million.

D. Is Food Corp. Liable to A & P for Water Charges?

Food Corp. is only be liable for the payment of water charges to the extent such a payment is required by the sublease.

Pursuant to paragraph 17 of the sublease, A & P assumed the responsibility for the Heating, Ventilation, Air Conditioning, Plumbing and Sprinkler Systems. Pursuant to paragraph 7 of the November 17, 1998 modification to the sublease, paragraph 17 was deleted "and in lieu thereof Subtenant assumes Sublandlord's obligations under the Overlease for the maintenance, repair and replacement of the heating ventilation, air conditioning, plumbing and sprinkler systems, it being understood that Sublandlord shall not have any responsibility with respect thereto."

A & P contends that this provision of the sublease entitles it to collect water charges from Food Corp. stating "obviously any responsibility includes paying for the water which was needed to run those systems."

The Court disagrees. Nothing in either paragraph 17 of the sublease or [*9]paragraph 7 of the November 17, 1998 modification address water charges. Rather these provision expressly refer to repair, maintenance and replacement of these systems, not the water charges incurred by tenant in running its business.

Thus, in the absence of any express obligation of Food Corp. to pay water charges, A & P is not entitled to collect such charges.

E. Is Food Corp. Liable for Equipment Rent?

Paragraph 6 of the modification to the sublease provides for payments for "Equipment Rent." There was no evidence presented at trial which even suggests that this provision has been altered or deleted. Thus, Food Corp. is obligated to make Equipment Rent payments as set forth in paragraph 6 of the November 17, 1998 modification to the sublease. Any Equipment Rent arrears are to be paid within 30 days of the date of this order.

F. Is Food Corp. Liable for A & P Attorney's Fees?

Paragraph 6 entitled DEFAULT, subparagraph (E) of the sublease provides, in relevant part:

If suit is brought by Sublandlord on account of any such default and if such default is established, Subtenant shall pay to Sublandlord all expenses of such suit including without limitation reasonable attorney's fees. . . .

Here, Food Corp. has defaulted in paying the proper fixed rent as well as percentage rent and equipment rent. Therefore, it is liable to A & P for its legal fees. The parties are directed to confer and attempt to agree upon a reasonable attorney fee. Should the parties be unable to come to an agreement on such a number, they are directed to contact the Court to schedule a conference on this issue.

Dated: White Plains, New York

July 14, 2011

HON. WILLIAM J. GIACOMO, J.S.C.