The Connecticut Supreme Court has affirmed a trial court's decisions in favor of Getty Properties Corp. and NECG Holdings Corp., enabling Getty Properties and NECG Holdings to regain possession from wrongful holdover subtenants at numerous gas stations throughout Connecticut, Getty Properties Corp. v. ATKR, LLC, No. 19298 (Conn. Jan. 27, 2015).
At issue was whether the termination of a master lease between Getty Properties and its prior tenant, Getty Petroleum Marketing Inc., also effectively terminated the sublease between Getty Marketing and its subtenant, Green Valley Oil, LLC, as well as numerous sub-subleases between Green Valley and its sub-subtenants operating retail gas stations throughout Connecticut.
The master lease provided that Getty Marketing could sublet the properties, but that such subleases "shall be subject and subordinate to the terms and conditions of this [master] [l]ease . . . and, unless [Getty Properties] elects otherwise, shall automatically terminate upon any termination of this [master] [l]ease" (decision at 1). That unequivocal language proved dispositive.
Getty Properties sent a notice to Getty Marketing in late 2011 terminating the master lease based upon nonpayment defaults, but Getty Marketing then immediately filed for bankruptcy protection. Via an order of U.S. Bankruptcy Court for the Southern District of New York, the master lease was rejected by Getty Marketing and deemed terminated effective April 30, 2012. While Getty Properties offered the subtenant operators an opportunity to continue running the stations on a month to month basis after termination of the master lease (and thus, subordinate subleases), the subtenants did not accept the month-to-month agreements. Rather, they sent rent checks to Getty Properties under their own proposed arrangement. Getty rejected both the checks and the operators’ proposal.
Connecticut law offers some protection to subtenants if the sublessor (the primary lessee) "voluntarily surrenders" its master lease with agreement of the primary lessor. The defendant subtenants claimed that the trial court should have interpreted the rejection of the master lease via a stipulation entered into in the bankruptcy proceedings as a voluntary surrender, thus preserving the rights of any subtenants. They cited as precedent Bargain Mart., Inc. v. Lipkis (1989), another case in which a sublessee sought to continue occupancy after its sublessor's bankruptcy. In that case, however, after the primary lessor issued various notices to quit, the primary lessor and the primary tenant settled the summary process action, rendering the surrender of the lease voluntary. Moreover, the Bargain Mart subtenant paid rent, which was accepted by the primary lessor, for five years after termination of the master lease.
In the current case, in contrast, the Supreme Court held that the trial court was "not clearly erroneous" in finding that the termination of the master lease was not a voluntary surrender. The court held:
...the record in the present case is replete with evidence of Getty Marketing's material monetary defaults under the terms of the master lease prior to its rejection of the master lease in bankruptcy. Accordingly, Getty Properties was well within its rights to terminate the master lease pursuant to the master lease's express terms, which it attempted to do multiple times with multiple notices to quit. Though Getty Properties was unsuccessful in terminating the master lease, at first, because Getty Marketing obtained injunctive relief from the New York state court and, later, because Getty Marketing filed for bankruptcy, the trial court's finding that the bankruptcy court's order dated April 30, 2012 effected a termination of the master lease pursuant to the master lease’s terms and on the basis of Getty Marketing's material monetary defaults was not clearly erroneous (p. 12).
The Court also lent weight to the fact that "postrejection, the plaintiffs immediately rejected the defendants' 'rent' checks and explicitly eschewed the defendants' 'proposed arrangement' to remain subtenants" (p. 12).
The defendants raised several additional procedural and evidentiary arguments that were summarily dismissed by the Court.
Cort T. Malone, a shareholder at Anderson Kill and counsel to Getty Properties, commented, "The Supreme Court's decision relied upon the express contractual terms of the leases at issue, and wisely interpreted the facts of this case under prevailing Connecticut law, in correctly holding that Getty Properties had met the requirements of the summary process statute and was entitled to reclaim its rightful properties."
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