No. CV 01-0074615S
January 9, 2004
MEMORANDUM OF DECISION
This is a second memorandum of decision regarding a motion for determination of priorities filed by the defendant, Fleet National Bank (Fleet) on June 6, 2003. This Court issued a memorandum of decision on October 7, 2003, requiring the parties to present evidence as to the fair market rental value of the property before determining how to distribute the condemnation proceeds. On October 27, 2003, the defendant, O.E. Limited Partnership (O.E.) tiled a motion to reargue and reconsider the memorandum of decision issued on October 7, 2003. On December 15, 2003, the court heard argument from both Fleet and O.E. concerning the determination of priorities.
The factual background of this case is not in dispute. This matter arises out of a partial taking of property by the commissioner of transportation pursuant to General Statutes § 13-73(b). The subject property is located at 445 Boston Post Road, Orange, CT, and is currently owned by Fleet. The portion of the property taken is a 1,997 square foot tract running along the property's eastern edge, which fronts Orange Center Road. On June 8, 2001, the department of transportation filed a notice of condemnation and assessment of damages. The commissioner assessed the damages at $35,300. Fleet and O.E., an owner of a leasehold interest in the property, claim rights to the proceeds.
General Statutes § 13a-73(b), entitled "Condemnation of land for state highway or highway maintenance storage area or garage," provides in relevant part:
The commissioner may take any land he finds necessary for the layout, alteration, extension, widening, change of grade or improvement of any state highway or for a highway maintenance storage area or garage and the owner of such land shall be paid by the state for all damages and the state shall receive from such owner the amount or value of all benefits resulting from such taking, layout, alteration, extension, widening, change of grade or other improvement . . . The assessment of such damages and of such benefits shall be made by the commissioner and filed by him with the cleric of the superior court in the judicial district in which the land affected is located, and such clerk shall give notice of such assessment to each person having an interest of record therein by mailing to each a copy of the same, postage prepaid, and, at any time after such assessment has been made by said commissioner, the physical construction of such layout, alteration, extension, widening, maintenance storage area or garage, change of grade or other improvement may be made.
On January 17, 1990, Connecticut National Bank (CNB), a predecessor in interest to Fleet, entered into a lease agreement (ground lease) with Joseph Pacitti, a predecessor in interest to O.E. Under the lease, CNB agreed to rent the property to Pacitti for $1.00 per month for a period of 45 years. On the same date, O.E. agreed to sublease the property back to CNB. Under that agreement, O.E. agreed to demolish the existing structure on the premises and build a new one to be used as a CNB branch. The parties also agreed that CNB would pay a rent of $22,247.75 per month for the first three years, which would increase by 1.5% every three years.
The sublease provided for a term of 33 years, with an option to extend the lease for an additional 12 years.
At issue here is whether Fleet or O.E. is entitled to the condemnation proceeds of $35,300. In its briefs and at oral arguments, O.E. argues that it is entitled to the entire amount of the condemnation proceeds based upon the language of the sublease and the ground lease. O.E. claims that the language of the sublease is plain and unambiguous, providing that in the event of a taking, Fleet, as the tenant, shall not be entitled to any portion of the proceedings. O.E. further claims that the condemnation provision in the ground lease, which provides that O.E., as the tenant, is entitled only to those portions of the condemnation proceeds related to the leasehold interest, is inapplicable to the present case, because it applies only in the event the ground lease is terminated.
To the contrary, Fleet does not assert its claim for the condemnation proceeds based on its interest as a subtenant under the sublease. Rather, Fleet argues that, under the ground lease, the tenant, O.E., is entitled to a portion of the proceeds of any condemnation award only to the extent that the condemnation affects the leasehold interest of the tenant. Fleet argues that because O.E.'s leasehold interest is not affected by the condemnation, Fleet, as the fee owner of the property, is the only party that has suffered a loss as a result of the taking, and therefore, is the only party entitled to the condemnation proceeds.
Our Supreme Court has upheld the enforceability of condemnation clauses in leases. See Waesche v. Redevelopment Agency, 155 Conn. 44, 49-50, 229 A.2d 352 (1957). "It is possible . . . to include in an automatic termination agreement, a clause containing provisions as to the rights of the Lessor and the Lessee in the condemnation award, and such provisions are valid and enforceable according to their terms." Id., 50; 27 Am.Jur.2d 22, Eminent Domain, 250. In this case, there are indeed such provisions as found in Section 15 of the ground lease and Section 10(c) of the sublease. Fleet and O.E.'s rights under these clauses depend upon their proper interpretation. See CT Page 442 Waesche v. Redevelopment Agency, supra, 155 Conn. 50.
Turning now to the specific provisions of the lease, Section 16 of the ground lease entitled "Eminent Domain," provides in part: "In the event of a partial taking (or purchase) of the Demised Premises, then the Tenant shall have the right but not the obligation to declare this lease null and void as to the partial premises taken (or so purchased) and all proceeds relating to the lease-hold interest created herein ( but not the fee estate) shall be the exclusive property of the Tenant." (Emphasis added.) Section 10(c) of the sublease entitled "Condemnation" provides: "Tenant shall not be entitled to any award or settlement resulting from the taking, provided that nothing contained herein shall be construed in any way to restrict or limit Tenant from asserting a claim for any damages resulting from the taking of any leasehold improvements paid for by tenant or moving expenses incurred as a result of such condemnation or the value of Tenant's leasehold interest, if any."
In interpreting Section 16 of the ground lease, this court finds that the provision clearly provides that O.E. is entitled to a portion of the condemnation award that affects its leasehold interest and that Fleet is entitled to the portion of the condemnation award that affects its fee estate. Contrary to O.E's contention, a plain reading of Section 16 of the ground lease reveals that it does not apply only in the event the lease is terminated. Based on this interpretation, O.E. has not demonstrated that the partial taking has decreased the rental value of the property or has damaged O.E.'s leasehold interest. Moreover, O.E. has not exercised its option to terminate the ground lease and O.E. will continue to pay rent at the full amount under the lease of $1.00 a month for the remainder of the 45-year term. Furthermore, there is no evidence that the partial taking substantially reduces O.E.'s ability as the tenant to use the property as it had originally intended. Fleet, however, as the owner of the fee estate, has suffered a loss because it now owns less property.
Moreover, under Section 10(c) of the sublease, it is not clear, as O.E. posits, that Fleet shall not be entitled to any portion of the condemnation proceeds. Although the provision states that the tenant Fleet shall not be entitled to any award resulting from a taking, it nevertheless states that Fleet can make a claim for the value of its leasehold interest. Here, Fleet is not asserting a claim under the sublease, which indicates that the taking has not affected the leasehold interest, but only the fee estate. Furthermore, there is no evidence of a decrease in the rental value of the sublease. As the subtenant, Fleet has not terminated the sublease but has continued to pay the monthly rent to O.E. in accordance with the terms of the sublease. Neither the ground lease nor the sublease has been affected here. Accordingly, this court concludes that Fleet, as the fee owner, is the injured party and should be reimbursed for its loss. It is well settled that "[t]he owner of land taken by condemnation is entitled to be paid just compensation." Conn. Const., art. I, 11; see also Robinson v. Westport, 222 Conn. 402, 405, 610 A.2d 611 (1992).
Section 10(a) of the sublease provides in part: "If a portion of the Land, Building or Premises shall be taken and Tenant is unable to carry on its normal business operations, Tenant shall have the right to terminate this Lease by giving notice to Landlord. Upon such termination, Tenant's obligation hereunder, including the obligation to pay the Rent, shall cease as of the date of termination."
In accordance with the condemnation clause in the ground lease and constitutional principles, this court concludes that Fleet is entitled to the full amount of the condemnation proceeds.
Judgment may enter in accordance with the above.
THE COURT BY CURRAN, JUDGE.