Vague Lease Provision Helps Tenant

Facts: Company A is the owner of the premises in which Company B, the tenant, occupied space as a full-service grocery store. Company B had a state-issued license to sell liquor at its store, and the state's agreement with Company B was that the state would pay a commission to the store for the sale of such liquor.

The original lease between Company A and Company B, signed in 1990 and amended in 1994, did not include any clauses pertaining to the profits Company B derived from the liquor sales. Under the terms of a second amendment in June 2000, Company B was to pay Company A 2 percent of its gross sales over the base amount of $5 million as percentage rent. As the lease signed in 1990 stated: “Gross sales is the total amount in dollars of the actual sales price of all sales of merchandise and services, and all other receipts and things of value.”

Company A sued Company B, claiming that the gross receipts for the sale of liquor was a part of Company B's percentage rent obligation. Company A claimed that only the commissions it received from the state should be considered part of its percentage rent.

Decision: The gross sales of liquor should not be included in the calculation of the “gross sales—as defined by the lease—to determine the amount of percentage rent due.

Reasoning: The court based its ruling on two legal principles.

The gross liquor receipts belonged to the state. Those receipts went into a separate bank account in the name of the state's department of liquor, and Company B was just the state's agent in the sale of such items. Because the sale of the liquor was made essentially by the state, and not Company B, the gross sales could not be included in any calculation of rent owed to Company A.

There was too much ambiguity in the contractual language. The court could not find either party's interpretation of this matter reasonable. The court ruled that there was no “meeting of the minds” between the two parties concerning liquor transactions. And the lease was so vague on this matter (and susceptible to two interpretations) that the provision should be construed against the owner, Company A.

• MapletownFoods, Inc. v. Mid-America Management Corp., June 2007.

Editor's Note: The court construed the ambiguous contract terms against Company A, the owner, because it was the owner that drafted the contracts. As the writer of the instrument, the owner had the burden of making its lease language clear.