Pier of Newport, LLC. v. N.A.J. Assocs., L.L.C.

• Decision Date: 11 February 2014
• Docket Number: C.A. No. NC 2011-0502
• Citation: Pier of Newport, LLC. v. N.A.J. Assocs., L.L.C., C.A. No. NC 2011-0502 (R.I. Super. Feb 11, 2014)
• Court: Rhode Island Superior Court
• Parties: THE PIER OF NEWPORT, LLC. v. N.A.J. ASSOCIATES, L.L.C. and N.A.J. PROPERTIES, L.L.C.

THE PIER OF NEWPORT, LLC. v. N.A.J. ASSOCIATES, L.L.C.and N.A.J. PROPERTIES, L.L.C.

C.A. No. NC 2011-0502

STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS NEWPORT, SC. SUPERIOR COURT

FILED: February 11, 2014

DECISION

VAN COUYGHEN, J. This matter is before the Court for decision following a nonjury trial. For the reasons set forth in this Decision, the Court finds in favor of the Defendants and awards them damages in the amount of $392,268. This Court has jurisdiction pursuant to G.L. 1956 §§ 8-2-13 and 8-2-14 and renders its decision in accordance with Rule 52 of Rhode Island Superior Court Rules of Civil Procedure.

IFacts

This case involves a dispute between the parties to a commercial lease of a restaurant. Plaintiff is The Pier of Newport, LLC. (Plaintiff). Petros and Charalambos Kyriakides are brothers and the sole members of the limited liability company. Defendants and Counterclaim Plaintiffs are N.A.J. Associates, L.L.C. and N.A.J. Properties, L.L.C. (Defendants). N.A.J. Associates, L.L.C. owns the restaurant business and the liquor license. N.A.J. Properties, L.L.C. owns the real property and improvements thereon. Vincent Sandonato (Mr. Sandonato) is the sole member of both companies. Plaintiff leased the property and the liquor license from Defendants.

The parties entered into a written Lease Agreement (Lease) on December 2, 2009. (Joint Ex. 1 or Lease). Plaintiff's obligations pursuant to the Lease were personally guaranteed by Petros and Charalambos Kyriakides. (Joint Ex. 1).¹ The subject of the Lease was a commercial property located at Howard's Wharf in Newport, and known as The Pier Restaurant. The restaurant is constructed on a wharf overlooking Newport Harbor and Narragansett Bay. The restaurant contains a bar/lounge area and two dining rooms. The smaller dining room, known as The Iris Room, contained a bar referred to as the "Martini Bar." The Martini Bar is at the heart of this controversy.

The Lease is a detailed commercial lease and was drafted by the attorneys for the parties. In real estate parlance, the Lease is referred to as a "triple net" lease. The parties have submitted the Lease as Joint Exhibit 1. A triple net lease requires that the lessee pay monthly rent and all expenses associated with the property, such as taxes, insurance, utilities, maintenance, and repairs. See Joint Ex. 1, ¶¶ 4, 5. The Lease also contained an Option to Purchase the real property, personal property, and the liquor license associated with the premises. (Joint Ex. 1, ¶ 26).

As the Lease formed the basis for the relationship between the parties, it is necessary to review it in some detail. The term of the Lease spanned from January 1, 2010 to 11:59 PM on October 31, 2011. (Joint Ex. 1, ¶ 2). Base rent in the amount of $15,000 per month for the first year and $17,000 per month for the remaining term was due and payable, in advance, on the first of each month. (Joint Ex. 1, ¶ 3). In addition to the base rent, Plaintiff was responsible for additional rent including real estate taxes, insurance premiums, and all utility costs, throughout the term of the Lease. (Joint Ex. 1, ¶ 4).

Plaintiff was also responsible for the maintenance of the building, including structural maintenance and repairs. (Joint Ex. 1, ¶¶ 5.3, 5.4). However, Plaintiff could not make structural renovations, alterations, or improvements without the landlord's prior written consent. (Joint Ex. 1, ¶¶ 5.2, 6).

Paragraph 6 of the Lease entitled "Alterations" reads as follows:

"6) ALTERATIONS: Tenant shall not make any structural alterations, additions and/or improvements to the Leased Premises without the prior written consent of the Landlord, which consent shall not be unreasonably withheld. Tenant, together with its request to make alterations, shall submit architectural drawings, structural renderings, specifications and the like to the Landlord for his review and approval. Landlord shall have two weeks from the date the Landlord receives the request and supporting material from the Tenant within which to respond to Tenant's request."

Plaintiff accepted the premises "AS IS" and acknowledged that the leased premises were in good order and condition, and sufficient for the uses intended by Plaintiff. (Joint Ex. 1, ¶ 5.1).

The Lease also contained a condition precedent. The Lease required that Defendant transfer the liquor license held by N.A.J. Associates L.L.C. to The Pier of Newport, L.L.C. forthwith. If for any reason the liquor license was not transferable, Plaintiff had the right to terminate the Lease. (Joint Ex. 1, ¶ 2.2). Upon expiration of the Lease, Plaintiff was required to "peaceably yield" the liquor license back to N.A.J. Associates, L.L.C. Id. The Lease required that Plaintiff execute the following documents, in advance, to effectuate return of the liquor license to N.A.J. Associates L.L.C. at the end of the Lease:

"(a) a collateral assignment transferring to Landlord all of Tenant's right, title and interest in and to the liquor license and other applicable licenses held for the Premises . . . (b) a Special Power of Attorney granting Landlord the power to execute all documentation necessary to transfer the licenses to Landlord . . . and (c) blank City of Newport application forms for the transfer [of], [sic] such licenses to the Landlord, all of which shall be held in escrow with the Landlord's attorney and which Landlord shallbe entitled to effectuate in the event of the termination of this Lease Agreement." (Joint Ex. 1, ¶ 7.3); seealso Joint Exs. 3, 2 and 4 respectively.

The parties agree that the liquor license was originally transferred to Plaintiff in an expedient manner and without incident.

As stated above, the Lease also contained an Option to Purchase. (Joint Ex. 1, ¶ 26). Paragraph 26(a) reads as follows:

"26. OPTION TO PURCHASE PREMISES

"(a) Tenant shall have the right to purchase the Premises for the sum of THREE MILLION FIVE HUNDRED THOUSAND ($3,500,000) DOLLARS the ("Purchase Price") by delivering a written notice to Landlord of Tenant's election to Purchase the Premises on or before September 1, 2011. The Purchase Price shall be payable as follows: 1) Two Million Dollars ($2,000,000) in cash, certified check from a Rhode Island Bank, or by wire transfer at Closing and 2) a Promissory Note in the amount of One Million Four Hundred Thousand Dollars ($1,400,000.00) made payable to Landlord (reflecting credit of the $100,000 paid by Tenant on or before December 31, 2010, pursuant to Section 3 hereof). The promissory note shall [sic] bear an interest rate of 7%, shall be amortized over ten years and may not be pre-paid (sic) during the first 5 years. The Closing shall take place on or before the 60^th day following the delivery of the Notice to Purchase. This option shall expire on September 1, 2011. The Note shall be secured by a first mortgage on the Leased Premises and with a security interest in the Liquor License, furniture, fixtures, equipment and inventory utilized in connection with the operation of the restaurant business located at the Leased Premises. Time shall be of the essence with respect to such purchase."

Paragraph 3(b) specified the terms associated with the consideration for the Option. It mandated that the consideration of $100,000 be paid on or before December 31, 2010. (Joint Ex. 1, ¶ 3). Other facts associated with the Lease will be addressed later in this Decision as needed.

Plaintiff's first witness was Petros Kyriakides. Mr. Kyriakides testified regarding his experience in the restaurant business dating back to 1973. He testified that he and his brother owned companies that owned a variety of hotels and restaurants in Newport County. He also testified that he and his brother had at least four meetings with Mr. Sandonato in the fall of 2009 to discuss leasing The Pier Restaurant with the Option to Purchase. Those discussions resulted in the Lease and Option to Purchase as reflected in Joint Exhibit 1.

Mr. Kyriakides testified that he was allowed early access to begin preparing the restaurant which had not been open since September 2008. See Joint Ex. 1, ¶ 2.1. He testified extensively about the initial repairs and renovations he made in order to increase the functionality of the restaurant. The restaurant opened in mid-February 2010.

As stated above, the smaller dining room known as The Iris Room contained a bar known as the "Martini Bar." Mr. Kyriakides testified that he wanted to expand the seating in The Iris Room to accommodate private parties, so he removed the Martini Bar in April 2010. He estimated that the removal of the Martini Bar allowed for an additional ten to twelve tables of four. The Martini Bar was approximately twenty-seven feet long and spanned the entire width of The Iris Room. It was secured to the side walls and the floor. It was a fully functional bar and had all the requisite plumbing and electrical accoutrements necessary for a full service commercial bar. The Martini Bar is depicted in photos contained in Joint Exhibit 16 and Plaintiff's Exhibit 5.

Mr. Kyriakides testified that he told Mr. Sandonato on at least two occasions prior to signing the Lease that he wanted to remove the Martini Bar. It is not disputed that Plaintiff did not request or receive written permission to remove the Martini Bar as required by Paragraph 6 of the Lease. Mr. Kyriakides also testified that at one point after the bar had been removed, hetold Mr. Sandonato that he would replace the Martini Bar if Mr. Kyriakides did not purchase the property.

As referenced above, the consideration for the Option to Purchase was not required to be paid when the Lease was signed. The Option required payment on or before December 31, 2010. (Joint Ex. 1, ¶ 3(b)). Mr. Kyriakides testified that the consideration of $100,000 for the Option to Purchase was paid on January 1, 2011.²

He also testified that he received the letter from Defendants' lawyer in mid-January of 2011, notifying him that the Defendants considered that ...