46 Conn. App. 187 | Conn. App. Ct. | 1997
Opinion
The defendants, Doris G. Brunelle (Brunelle)
Until 1984, Brunelle was the owner of Pequot.
In 1994, Brunelle discovered that Pequot intended to sell its business to Suntori, doing business as Belmont Springs Water Company (Suntori), and to terminate its operations. The agreement between Pequot and Suntori provided for a sales price of over two million dollars. Pequot claimed that, once it ceased operations, it would no longer owe Brunelle any rent because its gross sales, the base on which rent was calculated, would have dropped to zero. Brunelle argued that the lease provided for a minimum monthly rent of $4000, or, alternatively, that Pequot had a good faith duty to continue operating the company for the full term of the lease.
In January, 1995, Pequot sought a judgment declaring that, if its gross sales fell to zero upon the sale of its assets to Suntori and the termination of operations, it would owe no rent
Brunelle, in her individual capacity and as trustee, appealed, claiming that the trial court improperly (1) held that the lease did not contain an implied covenant obligating Pequot to operate on the premises during the entire term of the lease, (2) failed to find, under the doctrine of equitable estoppel, that the lease contained a minimum monthly rent of $4000, and (3) failed to find that under the doctrine of mistake the lease contained a minimum monthly rent of $4000.
Although Connecticut appellate courts have not yet considered whether and under what conditions a percentage lease may be deemed to contain an implied covenant to continue to operate and generate sales for the duration of a lease, other jurisdictions have considered the subject. We conclude, as do cases from other jurisdictions, that, under appropriate language in a lease and appropriate circumstances, such an implied covenant may exist. We, therefore, analyze the lease of the parties against the backdrop of those cases.
“In agreements where the rental is based either upon a straight percentage of sales, or upon a minimum fixed
The first factor of Lagrew concerns the base rent. If the base rent is below market value, one of the conditions for implying a covenant of continued operation is present. The reason for the applicability of this factor in relation to the implied covenant is that the amount of minimum rent can be tested by a trier to determine its adequacy. If it is adequate, there would be no basis for implying a covenant to continue operations in order to generate rent. Here, the $4000 rental payment as
The third test of Lagrew, the fact that the term of the lease is lengthy, is true here. At the time of trial, thirteen years remained in a twenty-five year lease. The length of the term is indicative of the parties’ intention that Pequot remain in business. Pequot would not have entered into a lease with such a length and Brunelle would not have accepted rental payments based solely on Pequot’s sales if both parties had not intended that Pequot remain in business for the full length of the lease.
The fourth Lagrew factor is whether the lease contains a subletting provision. In the Pequot-Brunelle lease, the right to enter a sublease is limited.
The fifth characteristic of an implied covenant to remain in business concerns the right of a lessee to remove fixtures from the leased premises. Although Pequot has rights in the fixtures,
The sixth factor of Lagrew, whether a noncompetition provision exists, does not fit the factual situation here. Most of the cases involving percentage leases involve space in shopping centers, a situation where a lessee is likely to bargain for a provision in a lease that the lessor will not lease to a competitor in that shopping center or the surrounding area. Here, where the business is tied to a spring, which is part of the leased premises, there is no necessity for such a noncompetition provision.
In Lagrew v. Hooks-SupeRx, Inc., supra, 905 F. Sup. 404, the plaintiff-lessors claimed an implied covenant
After a consideration of the factors involved in determining whether the lease of the parties contains an implied covenant to continue to operate and generate sales for the duration of the lease, we conclude that it does. The implied covenant is necessary to a rational understanding of this lease.
Having determined that the lease contains such an implied covenant, we next consider whether the scope of our review can include a resolution of the relief that may be afforded on the defendants’ counterclaim for a declaratory judgment. We conclude that we may determine, for the trial court’s guidance on remand, how to measure damages if Pequot ceases operations on the leased premises.
Declaratory judgment actions are governed by General Statutes § 52-29 and Practice Book § 391. General Statutes § 52-29 (a) provides that the Superior Court “may declare rights and other legal relations on request for such a declaration, whether or not further relief is or could be claimed.” Section 52-29 (b) further provides that “[t]he judges of the superior court may make such orders and rules as they may deem necessary or advisable to carry into effect the provisions of this section.”
The declaratory judgment procedure in Connecticut “has the distinct advantage of affording to the court in granting any relief consequential to its determination of rights the opportunity of tailoring that relief to the particular circumstances.” Id., 627. The relief afforded in a declaratory judgment action “is highly remedial and the statute and rules should be accorded a liberal construction to carry out the purpose underlying such judgments.” Bania v. New Hartford, 138 Conn. 172, 175, 83 A.2d 165 (1951).
In Sheff v. O’Neill, 238 Conn. 1, 678 A.2d 1267 (1996), a declaratory judgment action seeking a declaration regarding equal educational opportunity in our public schools, our Supreme Court rendered judgment for the plaintiffs on the merits. The court was then faced with the question of what sort of relief it could properly afford to the plaintiffs. In their prayer for relief, the plaintiffs in Sheff did not focus on appropriate remedial consequences in the event of judgment in their favor. See id., 45. Under these circumstances, the court determined that it had three options, one of which was to remand the case to the trial court for further proceedings. Id. This is the course that we choose to take.
In light of our judgment for the defendants, the trial court on remand will need to determine the consequential relief owing to the defendants if Pequot ceases
The defendants in the present case alluded in their counterclaim to what they believed was the amount of monthly rent due to them.
Some courts have treated the remedy of damages as arising from a breach of an implied covenant to pay a reasonable rent during the term of a lease rather than arising from a breach of an implied covenant to continue to operate a business on the premises. Bastian v. Albertson’s, Inc., 102 Idaho 909, 914, 643 P.2d 1079 (1982); see also Sinclair Refining v. Davis, 47 Ga. App. 601, 605, 171 S.E. 150 (1933). Any implied covenant to pay a reasonable rent is “a subspecies of a covenant of continuous operation.” Lagrew v. Hooks, supra, 905 F. Sup. 408. We agree that a covenant of continuous operation contains within it the subsidiary promise to pay a reasonable rent. The damages, thus, are the fair rental value of the premises during the time of the breach. Id.; Bastian v. Albertson’s, Inc., supra, 914. The dollar value of that amount is a question of fact.
The judgment for Pequot is reversed and the case is remanded with direction to render judgment for the defendants on their counterclaim, declaring that the lease and amendments to the lease contain an implied covenant to continue operations on the leased premises, and to hold a hearing to determine the amount of damages due to the defendants.
In this opinion the other judges concurred.
Unless otherwise noted, as used in this opinion, “Brunelle” refers to Doris G. Brunelle in her individual capacity.
Practice Book § 391 (e) provides: “The defendant in any appropriate action may seek a declaratory judgment by a counterclaim.”
The defendants, in their answer, also asserted the special defenses of promissory estoppel, fraud, estoppel and mistake.
Brunelle’s father founded the company in the 1940s as a soft drink business with a side line of bottling the water from a spring located on the property. Brunelle took over the company in 1964. Eventually Pequot’s focus shifted to the bottling and sale of spring water and the rental and sale of water coolers. Doris G. Brunelle conveyed her interest in the real estate and the lease to Doris G. Brunelle, trustee, on September 14, 1990.
The lease had been in effect from July 1, 1980 to June 30, 1984, when, in accordance with paragraph 4 of the lease, Doris Brunelle divested herself of a majority interest in Pequot Spring Water Company, and the extended term began.
The relevant paragraph of the lease, paragraph five, states as follows: "Rental During Extended Term: Lessee shall pay to Landlord as annual rental for the demised premises during the extended term a sum equal to six (6%) percent of the first FIVE HUNDRED THOUSAND ($500,000) DOLLARS of Lessee’s annual gross sales plus, if applicable, a sum equal to five (5%) percent of the next TWO HUNDRED THOUSAND ($200,000) DOLLARS of Lessee’s annual gross sales, plus, if applicable, a sum equal to four (4%) percent of the next THREE HUNDRED THOUSAND ($300,000) DOLLARS of Lessee’s gross sales plus, if applicable a sum equal to three (3%) percent of the next FIVE HUNDRED THOUSAND ($500,000) DOLLARS of Lessee’s gross sales in excess of ONE MILLION FIVE HUNDRED THOUSAND ($1,500,000) DOLLARS.
“The percentage rent period shall be semiannual and the rent shall be computed each percentage rent period. The last percentage rent period shall end on the date the term expires or otherwise terminates. Semiannual rent periods are periods within each lease year ending on June 30 and December 31, whether or not consisting of six (6) months. On or before the tenth (10th) day of the calendar month immediately following the close of each percentage rent period, lessee shall pay to landlord the percentage rent as defined herein.”
Paragraph 2 (a) of the first amendment provides: “Extended Term Rental Payments (a) Commencing on July 1, 1984, Lessee shall pay to the Lessor 1he sum of FOUR THOUSAND AND NO DOLLARS ($4,000.00) on or before the tenth (10th) day of each calendar month, to be applied against the amount of rent due Lessor pursuant to Paragraph 5 of the Lease.”
Paragraph 2 (e) of the first amendment provides: “The monthly payment set forth in Paragraph 2 (a) hereof shall be adjusted on June 30, 1985, and
Paragraph one of the second amendment provides: “Commencing on June 30, 1985, and on each anniversary date thereof throughout the term of the Lease, an adjustment shall be made so that the rent paid by Lessee to Lessor over the previous twelve month period shall equal the rent actually due Lessor for said period, pursuant to Paragraph 5 of the Lease. In the event that the rent due Lessor exceeds the amount paid by Lessee dining said period, then the amount of such excess rent due Lessor shall be added to the amount of the next monthly payment. In the event that the amount of rent paid by Lessee exceeds the rent due Lessor for said period, then Lessee shall deduct from its next monthly rental payment the amount of said excess payment, provided however, that in the event that the excess payment exceeds the amount of rent due Lessor for the next monthly payment, the excess over the amount of the next monthly payment shall bear interest at the rate of 10% per annum commencing upon the adjustment date, unless Lessor pays the amount of such excess payment to Lessee prior to the date of the next monthly payment.”
Pequot acknowledged that it would still owe Brunelle the triple net charges.
In view of our decision on the defendants’ first claim and the reasoning used to reach that decision, it is not necessary to reach her second and third claims. We agree with the trial court that the lease did not provide for a minimal monthly rent of $4000, and we agree with the trial court’s logical reasoning as to the claims involving equitable estoppel and mistake.
The subletting clause of the lease provides: “Assignment of Sublease. Lessee shall not assign this Lease nor sublet the premises without the written consent of the Lessor, which consent shall not be unreasonably withheld; it being understood, however, that the Lessee may, at any time, assign this Lease or sublet all or any part of the premises to a corporation or corporations in which the Lessee is the holder of a majority of said corporation’s issued and outstanding voting stock; and further, that the Lessee may sublet roof-top space or facilities for advertising purposes, subject to reasonable requirements of the Lessor. But no assignment or subletting shall release the Lessee from the performance of its obligations herein contained, and Lessee shall remain fully liable under this Lease.”
The lessee is permitted by the terms of the lease to remove fixtures from the leased premises.
The defendants’ counterclaim for a declaratory judgment requested settlement of the following questions:
"a. whether it would be a breach of the implied covenant of good faith and fair dealing contained in the Lease, as amended, for Pequot to cease operations of the Premises during the Extended Term, absent bankruptcy; and
“b. whether it would be a breach of the implied covenant of good faith and fair dealing in the Lease, as amended, for Pequot to cease paying the minimum monthly rental payment of $4,000.00 per month during the Extended Term, absent bankruptcy.”