The Law

Restaurant Owners Cooked by Ron Davis The operators of a Connecticut restaurant must pay a heavy penalty to their shopping center landlords for failure to pay their rent and for removing certain equipment from space they leased. The shopping center is Crossroads of Cromwell. And the restaurant operators had leased space at the shopping center through an assignment. The center’s owners had allowed the assignment when the tenant that initially leased there vacated the premises. Obviously dubious about the assignment, the center’s owners required the new tenants to afford them a security interest. That requirement gave the owners collateral to ensure that the new tenants would pay the rent due under the lease. That collateral, in case of default, was in the form of not only a promise to relinquish the restaurant space, but also the equipment necessary to operate a restaurant in that space. Months after the assignment, the restaurant operators stopped paying rent, then moved from the premises. Before leaving, however, they removed all the restaurant equipment. The shopping center’s owners responded by informing the tenants that they were in default of the lease. The owners eventually sued their former tenants, arguing that they owed $156,000 in unpaid rent, plus $17,000 to $18,000 in “administrative fees.” The owners added, however, that they would be willing to settle for about $125,000. Later, the owners said they learned that the tenants intended to sell equipment taken from the restaurant and use the proceeds for operating another restaurant. In response, the owners revised their claim, insisting that the value of their removed restaurant equipment was $153,000. But the tenants explained that because the purchase of the restaurant from the previous owner included $50,000 worth of equipment, the owners’ claim of $153,000 was overstated. Moreover, the tenants argued, the appraiser of the equipment’s value had not physically examined the items and incorrectly used the purchase price of the equipment when new and not depreciated. At trial, a Connecticut court found “probable cause to sustain the validity of the [shopping center] owners’ claim” of lease default. On appeal, a Connecticut appellate court simply noted that the tenants never provided an adequate record for a thorough review of the facts in the case. Explained the judge, “We can only speculate as to what mathematical formula was utilized…and which of the various sums presented through testimony about the purchase price of the collateral the court may have relied on.” The court therefore affirmed the lower-court ruling. (CC Cromwell, Limited Partnership v. Adames, 124 Conn.App. 191, 3 A.3d 10410) Decision: October 2010 Published: November 2010