R & R of Connecticut, Inc. v. Stiegler

Brief Fact Summary. A tenant was late in exercising a clause to renew its lease.  The landlord attempted to terminate the lease.

Synopsis of Rule of Law. Three factors muse be considered when determining if equitable principles should be applied to a party failing to renew a lease on time: (i) whether "the failure to give notice was mere neglect or gross wilful negligence"; (ii) whether the delay has been slight; and (iii) whether "the loss to the lessor is small".

Facts. A building was initially leased by the Defendant to Pedro Ortiz ("Mr. Ortiz") on June 13, 1979.  Mr. Ortiz assigned the lease to the Plaintiff on January 27, 1981.  The Plaintiff ran a supermarket out of the premises.  The lease's term was five and a half years, from June 15, 1979 to December 31, 1984.  Pursuant to Paragraph 6 of the lease, the tenant had an option to renew the lease for an additional five-year period.  This option was exercisable only if the tenant sent the landlord a written notice within twelve months prior to December 31, 1984, the day the lease was to terminate.  Paragraph 28 granted the tenant a right of first refusal, allowing the tenant the right to buy the property first if the landlord received an offer to buy it.  The Plaintiff was notified on January 26, 1984 that due to its failure to renew the lease within one year, the lease would terminate on December 31, 1984.  On February 6, 1984, the Plaintiff's attorney sent a letter to the Defendant's agent informing the agent that the Plaintiff's prior attorney had died on December 14, 1983, and that the attorney had intended, but did not due to his death, send a letter specifying that the Plaintiff wished to renew the lease.  The Defendant entered into an agreement to sell the premises on March 23, 1983 for $425,000 to McDonald's.  The value of the property was only $225,000.  The Plaintiff learned about this agreement to sell around February 24, 1984 and did not exercise his right of first refusal enumerated in Paragraph 28.  The lower court found McDonald's offer was a bona fide offer, but contingent on the satisfaction of certain conditions.  "The [lower] court concluded that Bayer's death, the large monetary loss to be suffered by the plaintiff, the speculative loss which the landlord might incur, and the customer loss from the neighborhood community justified equitable relief for the plaintiff."

Issue. "[W]hether a tenant's late notice of intention to renew a lease of commercial property should be excused on equitable principles?"

Held. Maybe.  The court first relied on [F.B. Fountain Co. v. Stein] and observed how that court held:  "We think the better rule to be that in cases of wilful or gross negligence in failing to fulfil a condition precedent of a lease, equity will never relieve. But in case of mere neglect in fulfilling a condition precedent of a lease, which does not fall within accident or mistake, equity will relieve when the delay has been slight, the loss to the lessor small, and when not to grant relief would result in such hardship to the tenant as to make it unconscionable to enforce literally the condition precedent of the lease."  Second, the court relied on [Xanthakey v. Hayes] which held the case before it was "peculiarly one for the interposition of equity to prevent the consummation of unconscionable hardship to the plaintiffs."  Third, the court relied on [Galvin v. Simons] and observed how that court noted equitable principles should apply where "1) there was no hint of loss to the lessor from the tenants' use of the property for another year; (2) that no space was available in Cheshire for the tenants' purposes; and (3) that thirteen days delay was a small percentage of the notice required.  The court then applies three factors it extracts from [F.B. Fountain].  First as to whether "the failure to give notice was mere neglect or gross wilful negligence" the court ruled the trial court's finding "fails to state whether the plaintiff's failure to give notice amounted to wilful or gross negligence which would not allow equitable relief or was merely neglect which would permit such relief under F.B. Fountain Co."  Second, as to whether the delay has been slight, the court concluded the delay was slight.  Third, the court construed the requirement that the "loss to the lessor is small" to mean "the delay itself must have caused the loss."

Discussion. This case demonstrates how courts attempt to formulate an objective standard to apply a certain equitable principle.