Howard-Arnold, Inc. v. T.N.T. Realty, Inc.

145 Conn.App. 696

77 A.3d 165

HOWARD–ARNOLD, INC.

v.T.N.T. REALTY, INC.

No. 34427.

Appellate Court of Connecticut.

Argued April 23, 2013.

Decided Sept. 17, 2013.

Rowena A. Moffett, New Haven, for the appellant (plaintiff).

Michael C. Jankovsky, Fairfield, for the appellee (defendant).

GRUENDEL, SHELDON and FLYNN, Js.

GRUENDEL, J.

The plaintiff, Howard–Arnold, Inc., appeals from the judgment of the trial court denying specific performance of an option to purchase real property and awarding to the defendant, T.N.T. Realty, Inc., rental use and occupancy payments. Specifically, the plaintiff claims that the court erred in (1) declining to order specific performance of the option and the defendant's obligation under the lease to perform roof repairs; (2) declining to award damages to the plaintiff in lieu of specific performance after finding that the defendant was in breach of the lease agreement; and (3) awarding to the defendant rental and use and occupancy payments. We affirm in part and reverse in part the judgment of the court.

The following facts are relevant to the resolution of the plaintiff's claims. In approximately 1989, Thomas Capobianco and Anthony D'Alto, then owners of a restaurant supply company, formed the defendant corporation, a holding company, with the purpose of purchasing the property located at 47 Railroad Avenue in West Haven (property). The defendant ultimately purchased the property for $1,000,000, subject to a $900,000 mortgage. Capobianco and D'Alto each held an interest in both the restaurant supply company and the defendant corporation until 2000, when the two terminated their business relationship.

As part of the arrangement to divide their interests, Capobianco received a 100 percent interest in the plaintiff corporation and the restaurant supply business, and D'Alto received a 100 percent interest in the defendant corporation and the property. The defendant then leased the property to the plaintiff for a ten year term to terminate in April, 2010, with the plaintiff paying $6000 in monthly rent, due by the 14th of each month. The lease agreement obligated the defendant to perform environmental remediation and to repair, among other deficiencies, the roof of the addition to the building located on the property. The lease agreement also provided to the plaintiff and Capobianco, as guarantor of the lease, an option to purchase the property.

In a letter dated June 7, 2007, the plaintiff and Capobianco notified the defendant that they had “elected to exercise their option to purchase” the property.¹ The letter, however, stated that “before [the plaintiff and Capobianco] can close, two issues must be resolved by [the defendant], namely [its] failure to satisfy [its] obligations” under article nine of the lease, which provides for the defendant's obligations with respect to environmental remediation and roof repair. The defendant replied, by letter, that it had completely fulfilled its obligations under the lease. After concluding that “the parties [would] not reach an agreement” regarding the defendant's fulfillment of its lease obligations and the plaintiff's exercise of the option, the plaintiff commenced the present action. In its amended complaint, it alleges, inter alia, three counts of breach of contract and requests damages, specific performance of the defendant's repair and remediation responsibilities under the lease, as well as specific performance of the option. The defendant filed a counterclaim for, inter alia, rental use and occupancy payments for the four month period following the expiration of the lease, during which the plaintiff remained in possession of the property while making partial rent payments.

After a bench trial, the court found that the plaintiff had not properly exercised the option under the terms of the lease because it had not tendered payment, and, accordingly, the court declined to order specific performance. The court also found, under the doctrine of impossibility, that the defendant was excused from performing its obligations under the lease with respect to the roof repairs, and, again did not order specific performance of such obligations. The court did find, however, that the defendant had breached the lease agreement by failing to fulfill its obligations to perform environmental remediation. Nonetheless, it did not fashion an order of damages to compensate the plaintiff for the breach. On the defendant's counterclaim, the court ordered rental use and occupancy payments for the four months during which the plaintiff had made only partial rent payments. From that judgment of the court, the plaintiff now appeals.

ISPECIFIC PERFORMANCE OF THE OPTION TO PURCHASE AND ROOF REPAIRS

The plaintiff claims that the court erred in declining to order specific performance of an option to purchase the leased property and specific performance of roof repairs that the defendant was obligated to perform under the terms of the lease. We disagree.

The following additional facts are relevant to the plaintiff's claims regarding the court's decision to deny the remedy of specific performance. Article thirty-six of the parties' lease agreement provided the plaintiff and Capobianco, as the lease guarantor, with an option to purchase the property. The lease states in relevant part: “During the term of the [l]ease of the [p]remises, [the lessee] and/or [g]uarantor shall each have the right to purchase the [p]remises ... upon payment of [$223,500] plus the then unpaid balance of the [m]ortgage which [the lessor] may then have on the [p]remises, provided that such balance shall not exceed [$350,000].... Notwithstanding the foregoing, effective on April 14, 2010, [the lessee] and/or [g]uarantor shall each be permitted to purchase the [p]roperty upon the payment of the sum of [$223,500] to [the lessor].”

Pursuant to article nine of the lease agreement, the defendant was obligated to perform environmental remediation of the property.² In December, 2000, the defendant provided to the plaintiff a “certificate of completion” from Environmental Consulting & Contracting, LLC (Environmental), indicating that the underground storage tank grave on the property ³ had been backfilled with soil and that soil sampleswere within acceptable limits established by the Environmental Protection Agency. Following the receipt of this certificate, in 2001, the plaintiff and defendant engaged in extensive correspondence regarding the plaintiff's potential purchase of the property, but did not come to an agreement with respect to the purchase price or how to allocate the cost of repairs to the roof.

Later in 2001, the plaintiff applied to Citizens Bank for financing to purchase the property. As part of the application process, Citizens Bank conducted an environmental review of the property. It determined that Environmental had used inappropriate testing methods and that it had done no investigation into the extent of the leakage on the property. As a result of its findings, Citizens Bank concluded that in order to proceed with financing, the plaintiff would need to conduct further environmental investigation of the property, including conducting testing of soil samples. The plaintiff sought to have the defendant conduct further remediation, but the defendant refused, asserting that the remediation and testing by Environmental had satisfied its obligations under the lease. The plaintiff never secured financing for the purchase of the property.

Article nine of the lease agreement also obligated the defendant, by October 31, 2000, to “repair the entire roof on the rear section of the [p]remises (i.e. the addition made ... during 1969), as necessary, such that the leak will be completely fixed during the term of the [l]ease ... [and to] repair the leaning walls and correct the structural deficiencies (i.e. footings, steelbeams, wall, roof ... as determined by a licensed engineer selected by [the lessor] ) in the rear addition....” To fulfill this obligation, the defendant hired a contractor, Robert Meena, to conduct the roof repairs. Despite Meena's efforts to repair the roof, it leaked for the duration of the lease term.

At trial, the plaintiff called Rafael Aschettino, a structural engineer, to offer expert testimony on the leaking roof. He testified that the roof leak “arose because the rear addition was not connected” to the original building. As explained by Aschettino, in the summer and winter months, the buildings would move apart, causing the roof membrane to tear. Aschettino testified that his recommended solution for the problem would be to install expansion joints at the juncture between the addition and the preexisting building.

After the trial, the court found that under the terms of the lease the plaintiff was required to tender the purchase price of the property in order to exercise the option. Because the plaintiff did not do so, the court declined to order specific performance of the option. The court also found unavailing the plaintiff's arguments that it was excused from tendering the purchase price because of the defendant's failure to adequately perform environmental remediation to the property prevented it from tendering payment and because the defendant was in breach of the lease with respect to roof and structural repairs.⁴ As to the roof repairs, the court found that the doctrine of impossibility excused the defendant's performance of those obligations and, accordingly, declined to order specific performance.

We next set forth the applicable standard of review of a court's decision to deny specific performance. “[T]he specific performance remedy is a form of injunctive decree in which the court orders the defendant to perform the contract.... The specific performance decree originated in the old equity courts and continues today to be thought of as an equitable remedy, with the usual attributes of such remedies.... The availability of specific performance is...