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P operates a fine dining' restaurant, does catering and special events, a casual Tex-Mex restaurant, and the Red Sage Market, a take-out facility that sells sandwiches, salads, snacks, cold drinks, tea, coffee, and desserts, including a variety of whole cakes available by special order. P leased its current space in September of 1990. At that time, the building was owned by 607 14th Street Associates Limited Partnership. The original lease was not negotiated at arm's length. The lease provided that 'tenant shall use and occupy the Leased Premises solely as a bar and/or a restaurant.' The lease also included the following exclusive covenant and penalty clause: Landlord covenants that during the Term it shall not permit any other tenant within the building to operate a bar, restaurant, or food service establishment of any kind (a 'Competing Use')...In the event that a Competing Use is operated in the Building at any time during the Term and Landlord has violated its covenants under this Section 34, then (i) one half (1/2) of the Base Rent payable hereunder shall be abated during the period that the Competing Use is operated in the Building, and (ii) Tenant may terminate this Lease if the operation of the Competing Use continues for a period of six (6) months after written notice thereof by Tenant to Landlord…. The provisions of this subsection (e) shall not limit … any other remedies which Tenant may have against Landlord for violating its obligations under this Section. Six years later, a second lease was signed. It stated: Tenant use, and occupancy of the Leased Premises shall consist of owning and operating a restaurant and bar and carrying on any and all activities incidental or related thereto, including, but not limited to, operating a retail general store primarily selling t-shirts, sweatshirts, souvenirs, spices, baked goods, foods, and other items related to Tenant's bar and restaurant. The base rent was 'six and one-half percent … of P's Gross Revenues, but in no event less than Four Hundred Thousand Dollars. This lease was executed at arm's length. D purchased the building and inherited another amended lease that left intact the tenant use, base rent, exclusive covenant, and penalty clause provisions in the amended lease, stating that 'all terms and provisions of the Lease which are not amended hereby are hereby ratified and confirmed in all respects.' P asserts that D was 'actively involved' in negotiating the 1997 amendment, since 'reformulation of the Lease was a precondition to the purchase of the Building by D.' D's representative signed the 1997 amendment, endorsing it 'Accepted and Agreed.' After the purchase, D leased space in the building to a specialty store known as Cakes & Company. Cakes primarily sold whole cakes--prepared elsewhere and decorated on-site--for weddings and special occasions. It also sold tea, coffee, single slices of cake, and some of the same prepackaged drinks sold by P. Cakes had no menu, wait staff, or customer tables or chairs. In Cakes' first four months of operation, its gross sales were almost $95,000, its gross profits around $50,000, and its net income about $11,000. P sued D seeking a declaration that D 'has breached and continues to breach the Lease, [and] that as a result of this breach P is entitled to an abatement of one-half of the Base rent….' D eventually moved for summary judgment on the ground that the rent abatement provision constituted an unenforceable penalty. The court agreed with D that 'a rent abatement of $200,000 … would indeed impose an improper penalty.' Cakes also closed its shop and terminated its lease with D. The dispute concerns the value of the abatement for the period during which Cakes operated. P appealed.

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