Berkeley Development Co. v. Great Atlantic & Pacific Tea Co.

• Decision Date: 05 September 1986
• Citation: 214 N.J.Super. 227,518 A.2d 790
• Parties: BERKELEY DEVELOPMENT CO., Plaintiff, v. The GREAT ATLANTIC & PACIFIC TEA COMPANY and Community Distributors, Inc. (incorrectly impleaded as Drug Fair, Inc.), Defendants.
• Court: New Jersey Superior Court

Page 227

214 N.J.Super. 227

518 A.2d 790

BERKELEY DEVELOPMENT CO., Plaintiff, v. The GREAT ATLANTIC & PACIFIC TEA COMPANY and Community Distributors, Inc. (incorrectly impleaded as Drug Fair, Inc.), Defendants.

Superior Court of New Jersey, Law Division Union County.

Decided Sept. 5, 1986.

Robert J. Fettweis, for plaintiff (Clapp & Eisenberg, attorneys).

Christine D. Petruzzeli, for defendant Great Atlantic & Pacific Tea Co. (Wilentz, Goldman & Spitzer, attorneys).

Rowand H. Clark, for defendant Community Distributors, Inc. (Bernstein, Hoffman & Clark, attorneys).

BOYLE, J.S.C.

The issue in this case is: does a tenant-assignee, a modern chain drug store, selling general merchandise including food, have the right to enforce a covenant against competition contained in an original lease between the landlord, a shopping center owner, and the original tenant-assignor, a supermarket, where the tenant-assignor has ceased its operations within the shopping center?

This court has decided that it does not under the circumstances.

Plaintiff, Berkeley Development Co. (Berkeley), filed a complaint for declaratory judgment pursuant to N.J.S.A. 2A:16-50 et seq. against defendants, Great Atlantic & Pacific Tea Co., Inc. (A & P) and Community Distributors, Inc., t/a Drug Fair (Drug Fair). Answers were filed by A & P and Drug Fair and, thereafter, Drug Fair counterclaimed against Berkeley and cross-claimed against A & P.

Berkeley has now moved for summary judgment. Both Berkeley and Drug Fair request that this court construe the terms of a lease and an "Agreement of Sublease" and make certain determinations and declarations. Counsel for A & P has submitted a letter stating that it would take no position on the motion.

The parties have stipulated that all discovery has been concluded in this case. Since there are no disputes as to any material facts, the case is ripe for summary judgment. This court has, therefore, proceeded to render its decision. Judson v. Peoples Bank and Trust Company of Westfield, 17 N.J. 67, 73-75, 110 A.2d 24 (1954).

Berkeley, the landlord, is the owner of a small shopping center commonly known as Berkeley Heights Shopping Center (shopping center). On February 1, 1965, A & P became a tenant within the shopping center at 400 Springfield Avenue, Berkeley Heights, occupying one store consisting of 11,514 square feet of retail space. ¹ A & P, which intended to operate a supermarket, included within the lease agreement a covenant against competition. Addendum "F" to the lease stated as follows The lessor [Berkeley] obligates itself not to lease, rent or permit to be occupied a store now owned by it or wherein it is interested for the sale of food or food products within the Shopping Center now owned by the lessor so long as lessee [A & P] handles food or food products at retail. This is not intended to exclude such stores as a restaurant, luncheonette, confectionery store, drug store or bakery. This restriction is also not intended to apply to a chain, variety or department store provided, however, that any food department operated by said chain or department store does not exceed 2,000 square feet total area.

It has been established that food or food products for retail sale were displayed in the entire retail area of the A & P store, except for a small area in which beauty aids and other non-food items were sold.

Although the initial lease term ended January 31, 1976, the lease, which provided for four renewal extensions of five years each, was duly renewed and extended and continues in full force and effect. On April 16, 1977, however, A & P informed Berkeley that it was closing the store and that it intended to lease the premises to Drug Fair. Accordingly, A & P ceased to operate its food retail store shortly thereafter.

A document entitled "Agreement of Sublease" was entered into on May 4, 1977 between A & P as "sublessor" and Drug Fair as "sublessee." In the agreement between A & P and Drug Fair, A & P purported to sublet its lease to Drug Fair. Paragraph 26 of the lease provides in part that:

Each and every provision of this lease shall bind and shall inure for the benefit of the parties hereto, their legal representatives, heirs, successors and assigns ...

and under paragraph 5A of the "Agreement to Sublease" it was provided that:

All of the rights and obligations contained in the overlease conferred and imposed upon the Sublessor (as Tenant therein) except as modified and amended by this Sublease, are hereby conferred and imposed upon Sublessee....

Drug Fair commenced business at the premises in July 1977.

It has been contended by Drug Fair that the primary business of the store at the premises is that of a "modern chain drug store" which sells "food and foodstuffs, pharmaceuticals and general merchandise." At the same time, it has been admitted that the store devotes only 1,200 to 2,000 square feet to the sale of food or food products which accounts for only 7% to 10% of the entire retail space.

Berkeley now seeks to lease to a supermarket a store to be constructed on the premises. It contends, in sum, that the covenant against competition established in addendum "F" to the lease between Berkeley and A & P prevents Berkeley from leasing space to a supermarket elsewhere in the shopping center only as long as the lessee continued to sell food in a widely-varied supermarket operation. Since Drug Fair now occupies the premises, operating a modern chain drug store, Berkeley claims that the basis for the covenant against competition no longer exists. Berkeley insists that Drug Fair does not handle food or food products at retail to the extent sold by a supermarket and that the restrictive lease provision was clearly designed only to preclude the possibility of having two supermarkets in operation simultaneously at the shopping center.

Drug Fair, on the other hand, contends that it has the right, by virtue of its "Agreement of Sublease" with A & P, to enforce addendum "F" for its own benefit, thereby preventing Berkeley from leasing to a supermarket elsewhere in the shopping center.

It is initially necessary to decide whether the document entitled "Agreement of Sublease" is a sublease or is, in fact, an assignment. The extent of the rights that Drug Fair obtained from A & P will depend upon this determination. Before declaring whether Drug Fair can assert addendum "F" of the lease, it is necessary to determine whether Drug Fair can enforce such a restraint against Berkeley.

Assignment and subletting are naturally incident to a leasehold estate. They cannot be restricted unless by express stipulation to that effect. Baum v. Tazwell, 26 N.J.Misc. 292, 295, 61 A.2d 12 (Cir.Ct.1948). Therefore, absent a negative covenant or provision, a lease is as assignable as any other contractual right. Matlack v. Arend, 2 N.J.Super. 319, 331, 63 A.2d 612 (Ch.Div.1949); Holmes v. Harris, 33 N.J.Super. 395, 403, 110 A.2d 329 (App.Div.1954). At the same time, if a lease does not contain a provision restraining the lessee from subletting, the lessee may do so at its option, even over the landlord's objection. Braunstein v. McGrory Stores Corp., 93 N.J.Eq. 419, 420-421, 116 A. 707 (E. & A.1922); Jenkins v. Kaplan, 53 N.J.Super. 582, 587, 148 A.2d 33 (App.Div.1959). See also, Sinclair Refining Co. v. Clay, 102 F.Supp. 732, 735 (N.D.Ohio 1951), aff'd 194 F.2d 532 (6 Cir.1952); 1130 President St. Corporation v. Bolton Realty Corporation, 198 Misc. 198, 97 N.Y.S.2d 422 (Sup.Ct.1950). In the present case, the lease between Berkeley and A & P contains no language which would prevent the lease from being either assigned or sublet to any third party.

The document entered into between A & P and Drug Fair is clearly entitled "Agreement of Sublease." Furthermore, A & P is called the "sublessor" and Drug Fair is called the "sublessee" throughout the agreement. If this court were simply to look at the form of the agreement, it would be constrained to find that the parties entered into a sublease. Consequently, the answer to the question initially posed would be clear. Drug Fair would be unable to attempt to enforce addendum "F" against Berkeley.

It is well established that a subletting creates the relationship of landlord and tenant between the sublessor and the sublessee. There is no privity of contract, Wehrle v. Landsman, 23 N.J.Super. 40, 46, 92 A.2d 525 (Law Div.1952); Baum, supra, 26 N.J.Misc. at 295, 61 A.2d 12, or estate between the landlord and the subtenant with the lessee standing as a buffer between the landlord and the subtenant. Marcellus v. K.O.V., Inc., 5 Kan.App.2d 339, 615 P.2d 170, 172 (1980). The sublease vests no right in the sublessee to enforce the sublessor's agreement contained in the original lease. Holiday Village Shopping Center v. Osco Drug, Inc., 315 F.Supp. 171, 174 (D.Mont.1970). Therefore, the insulation that exists between the prime tenant and the subtenant prevents the subtenant from enforcing against the landlord any rights given in the prime lease to the prime tenant. Employees' Consumer Org. Inc. v. Gorman's, Inc., 395 S.W.2d 162, 166 (Mo.1965). See Friedman, Leases, § 7.701 at 324 (3 ed.).

Whether an agreement is an assignment or a sublease is not, however, dependent solely upon form. Rather than relying upon the title given to a transaction by the parties, a court must consider the actual terms and conditions of the agreement. See Jordan v. Scott, 38 Cal.App. 739, 745, 177 P. 504, 506 (Dist.Ct.App.1918). Where the whole term of the lease is transferred by a lessee to a third party, the transfer is an assignment, not a subletting. Wilson v. Cornbrooks, 104 N.J.L. 418, 422, 140 A. 292 (E. & A.1928); Stark v. Nat. Research and Design Corp., 33 N.J.Super. 315, 320-321, 110 A.2d 315 (App.Div.1954); Dries v. Trenton Oil Co., 17 N.J.Super. 591, 596, 86 A.2d 427 (App.Div.1952); 24 Broad Street Corp. v. Quinn, 19 N.J.Super. 21, 30, 87 A.2d 759 (Ch.Div.1952). See also...