Opinion
No. HDSP-123217
July 30, 2003
MEMORANDUM OF DECISION
FACTS
This is a summary process action brought by Plaintiffs Anthony and Carmella LaQuerre to recover possession of a commercial premises at 1426 Farmington Avenue, basement and west side, first floor, Farmington, Connecticut. Defendants Veena and Nirmel Singh entered into a contract with Plaintiffs to lease these premises for use in operation of a market known commercially as Highland Dairy Store. A notice to quit citing as a statutory reason "lapse of time on oral month-to-month lease" was served on February 19, 2003 with a terminal date of February 28, 2003. A summons and complaint with a return date of March 10, 2003 was served upon Defendants on March 3, 2003.
The premises lease filed as Pl. Ex. 1 was entered into by Plaintiffs for the period July 1, 1997 for five years, to expire on June 30, 2002. The rental was $825 in the first year; $850 in the second; $875 in the third; $900 in the fourth; and $925 in the fifth. In November 1999, the lease was assigned and sublet to Sanrayaj and Rajni Khanna. Plaintiffs withdrew the summary process action against Defendants Veena and Nirmel Singh, the original tenants, on March 18, 2003.
The Khannas each filed an appearance and answer with special defenses through their attorney on March 13, 2003. Defendants deny that the lease has lapsed, and allege the existence of a renewal option in the lease contract's fourth paragraph, which reads:
4. TERM OF LEASE. The term of this Lease shall be for a period of five (5) years, with a five (5) year option at a rate negotiable at the time of renewal.
In their special defenses to the answer dated March 13, 2003, and Pl. Ex. 3, a letter from Defendant's Attorney John Conway to Plaintiffs, CT Page 8425-b dated February ii, 2003, the Defendants set forth a course of conduct with respect to the option as follows:
a) On April 28, 2002, Sanrayaj Khanna approached Plaintiffs seeking to negotiate his optioned right to renew the lease for a five-year period. Plaintiffs, however declined to negotiate. On May 6, 2002, Khanna again attempted to negotiate the right of renewal with Plaintiff Anthony LaQuerre, who declined a second time to discuss the matter, stating that he did not want to negotiate until Defendants sold the store.
b) On June 9, 2002, the same events described in the above subheading transpired a second time.
c) On or about June 9, 2002, Plaintiff Mr. LaQuerre requested that Khanna begin to pay an interim rental increase of $50 per month, beginning on July 1, 2002, until Defendants sold the store and a renewal option could be negotiated. The Khannas assented to these terms.
d) Between July 2002 and February 2003, the Khannas attempted on several occasions to confirm their right of renewal with Plaintiff Mr. LaQuerre, who again declined to discuss the matter before Defendants sold the store.
e) On or about February 8, 2003, Jerry LaQuerre, Plaintiff Mr. LaQuerre's son, requested $1,400 rent per month from the Khannas, who in turn expressed a desire to negotiate the rent with Plaintiffs.
f) On or about February 11, 2003, the Khannas issued a counteroffer starting at $1000.00 to Plaintiff Mr. LaQuerre's demanded increased rental for the renewal option.
g) Between March 12, 2003 and the time at which this litigation began, Plaintiffs did not respond in any respect to Khanna's counteroffer.
h) Immediately prior to trial, but after the service of the notice to quit and complaint, the defendant agreed to the starting figure for rent of $1400 per month.
The plaintiffs in their reply deny the special defenses
ISSUES
1. Did the lease agreement's fourth paragraph constitute a legally CT Page 8425-c binding renewal option in the absence of the parties reaching a negotiated rate?
2. Did Plaintiffs contract in good faith with Defendants to establish the lease's optioned renewability upon expiration of the original rental term?
DISCUSSION
Issue One
In order to be considered valid, a renewal option must contain several essential terms. The general rule, as enunciated by the Connecticut Superior Court in Sponzo v. Gooden, 13 Conn.L.Rptr. 469, 1995 Conn. Super. LEXIS 337 (Jan. 31, 1995), (DiPentima, J.) is that an optioned lease renewal requires "agreement by the parties regarding the amount of rent due under the new lease" in order to withstand legal scrutiny. Id. at 341.
Sponzo's fact pattern included a landlord, like Plaintiffs, who failed to respond to his tenant's suggestions to finalize terms of the tenant's proposed renewal. "The defendant did write to the plaintiff setting forth an offer regarding a renewal of the lease and did increase his rent payments." This is somewhat analogous to the facts in the instant situation, although communications in the instant case were oral. The Connecticut Superior Court in Sponzo, found that, "[n]o new lease under the option to renew was formed between the parties" for lack of an agreed rental fee. See David A. Altchuler Trust vs. Blanchette, 33 Conn. App. 570, 573-574, (1994). In addition, Judge DiPentima, in Sponzo, found that "[t]here was no agreement by the parties regarding the amount of rent due under the new lease and the offer was untimely under the lease provision."
Northeastern courts have largely followed this rule in recent years. The New York Supreme Court in Mur-Mil Caterers, Inc. v. Werner, 166 App. Div. 2d 565, 560 N.Y.S.2d 849 (1990), held that "[t]o constitute a valid agreement for the lease of real property, the parties must have reached final agreement upon all its essential terms, without reservation of any term for future negotiations," and that "[t]his is especially true of the amount to be paid for rent." Id. at 566. . The court ultimately found that since "the rent figure is not ascertainable by an objective standard, . . . the proported lease fails for indefiniteness." Id. The same court in similar circumstances, further applied Werner's reasoning in Seiden v. Francis, 184 App. Div. 2d 904, 585 N.Y.S.2d 562 (1992), holding that CT Page 8425-d
"[i]t is well settled that `a mere agreement to agree, in which a material term is left for future negotiations, is unenforceable' . . . This rule is particularly applicable when the rental or sale amount of real property is the missing term, as it is in the case at bar." Id.
Other courts have applied similar rationale as well. For example, according the Florida Court of Appeals in Edgewater Enterprises, Inc. v. Holler, 426 So.2d 980 (1982):
"the amount of rental is an essential element of a lease, if not the basis for a lease, and an agreement to make a lease, or to renew or extend a lease, that fails to specify either the amount of the rental or a definite procedure to be followed to establish the amount of the rental, is too indefinite to be legally binding and enforceable." Id. at 983.
As in the instant case, the tenants in Holler notified their landlord that they wished to renew their lease of his premises, only to see their intentions frustrated when their negotiation efforts with him failed. The Holler court justified this position by explaining that
"we believe that when contracting parties do not agree on an essential provision there is no `meeting of the minds' that is the essence of a contract" and "if an essential element is reserved for the future agreement of both parties, the promise gives rise to no legal obligation until such future agreement." Id.
Based upon this reasoning, the court held that "[s]ince either party, by the very terms of the agreement, may refuse to agree to anything the other party will agree to, it is impossible for the law to fix any obligation to such a promise." Id.
The same court followed the Holler decision in LaFountain v. Estate of Kelly, 732 So.2d 503 (1999), in which another lease's renewal option "did not specify the rental amount or a method for reaching agreement on the rent, and the option was thus unenforceable once the parties failed to agree to an essential element of the lease." Id. at 505. In addition, the Georgia Court of Appeals likewise maintained this principle in Insurance Industry Consultants, Inc. v. Essex Investments, Inc., 549 S.E.2d 788 (2001). According to the court,
"[t]o be enforceable, [a] provision for the renewal of a lease must specify the terms and conditions of the renewal with such definite terms and conditions that the court may determine what has been agreed upon, and if it falls short of this requirement it is not enforceable. CT Page 8425-e It must be certain and definite both as to the time the lease is to extend and the rent to be paid." Id. at 792.
The court noted:
"[a] provision for renewal need not presently fix all of the terms of the new lease; it may furnish a certain and definite method for their ascertainment and determination in the future," but "if terms, such as duration and rent, are left for future ascertainment, and no method is provided by which they are to be determined, the contract is unenforceable for uncertainty." Id.
In Toys, Inc. v. F.M. Burlington Co., 582 A.2d 123 (1990), the Vermont Supreme Court held that a lease whose renewal option left the tenant "free to renegotiate the rate" was held to be enforceable. Id. at 124. However, the option's enforceability in that case was based upon the fact that it also contained "a practicable, objective method of determining the essential terms," namely a provision that "[t]he prevailing rate is subject to change until such time as an agreement for renewal is reached." Id. The renewal clause at issue included no such method.
Therefore the Court in the instant matter, finds that there was no new lease that was formed by the five year option, since the parties were unable to negotiate the rate, and the Court cannot substitute its judgment as to the parties intentions.
Issue Two
As Judge Riddle observed in Village Linc Corp. v. The Children's Store, Inc., 1993 Conn. Super. LEXIS 2978 (Oct. 7, 1993), "[a] commercial lease imposes upon both a landlord and a tenant a duty of good faith and fair dealing." Id. at 2987. The court went on to explain that "[g]ood faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party; it excludes a variety of types of conduct characterized as involving `bad faith' because they violate the community standards of decency, fairness or reasonableness." Id.
Connecticut requires allegation of three elements in order to maintain a claim for breach of the covenant of good faith and fair dealing:
"[f]irst, that the plaintiff and the defendant were parties to a contract under which the plaintiff reasonably expected to receive certain benefits; second, that the defendant engaged in conduct that injured the plaintiffs right to receive some or all of those benefits; CT Page 8425-f and third, that when committing the acts by which it injured the plaintiffs right to receive benefits it reasonably expected to receive under the contract, the defendant was acting in bad faith."
Pine Creek Partners, LLC v. Seaman, 2000 Conn. Super. LEXIS 3589, 3596 (Dec. 21, 2000).
Pine Creek further elaborates that
"[b]ad faith in general implies both actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not promoted by an honest mistake as to one's rights or duties, but by some interested and sinister motive . . . Bad faith means more than mere negligence; it involves a dishonest purpose." Id.
The Defendants argue that there was a breach of the covenant of good faith and fair dealing. Connecticut courts have found that "[I]f a commercial lease imposes a duty of good faith and fair dealing upon a tenant, there is no reason not to impose a similar duty upon a landlord." Warner v. Konover et al., 210 Conn. 150, (1989)
The Connecticut Superior Court examined this good faith covenant in De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 2002 Conn. Super. LEXIS 2862 (Aug. 23, 2002) (Satter, J.) and quoted from the Restatement of Contracts. "Section 205 of the Restatement, comment (a) notes that good faith "excludes a variety of types of conduct characterized as involving `bad faith' because they violate community standards of decency, fairness or reasonableness." Id. at *18. "The courts recognize that bad faith means more than mere negligence." Id. at *18. "It involves a dishonest purpose." Habetz v. Condon, 224 Conn. 231, 237, 618 A.2nd 501 (1992). Bad faith in general implies
"a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties but by some interest or sinister motive . . . [it] . . . implies the conscious doing of a wrong because of dishonest purpose or moral obliguity . . . it contemplates a state of mind affirmatively operating with a furtive design or ill will." Buckman v. People Express, Inc., 205 Conn. 166, 171, (1998). De La Concha of Hartford, Inc. at, 19.
Comment A of Section 205 of the Restatement of Contracts notes that "good faith in performance or enforement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the parties." (Emphasis added.) The parties in CT Page 8425-g the instant situation agreed only that there be a five year lease and that there was the right to an option of " 5 years at a rate negotiable at the time of renewal." The common purpose of the meeting of the minds in the instant lease assumes that the parties could agree upon a rate.
While the defendant can argue the plaintiff knew that the defendant's were trying to sell the business, it was up to the defendants to make a solid offer in writing. Connecticut courts have recognized that "a party to a contract is entitled to take reasonable positions to protect its interest." Elliott v. Staron, 46 Conn. Sup. 38, 48, (1999). The fact that the plaintiff requested $1400 per month for the first year, and the defendant's counteroffer was only $1000 (Pl. Ex. 3), demonstrates that there was no meeting of the minds. Pursing self interest, and driving a hard bargain does not appear to the Court to be dishonest or in bad faith. The Court therefore finds that plaintiffs did not violate the covenant of good faith and fair dealing by a fair preponderance of the evidence. the reason of lapse of time.
Therefore, the Court enters judgment for the plaintiffs and against the defendants for the reason of lapse of time.
___________________ Angelo L. dos Santos, Superior Court Judge