Franchisor Could Sue Owner for Altering Space

A franchisee tenant, its franchisor, and the owner signed a rider to the tenant's lease that said the franchisor had the right to a “conditional assignment of the lease.” This meant that if the tenant defaulted on the lease and the owner decided to cancel the lease and take back the space, the owner had to give the franchisor written notice. Then the franchisor would have time to either cure the default or exercise its right to the conditional assignment—that is, terminate its franchise agreement with the tenant and exercise its option to assume the lease. When the tenant defaulted, the owner notified the franchisor that it planned to cancel the lease and take back the space. Then it changed the locks and removed the tenant's equipment, inventory, and some interior walls. The franchisor sued the owner, arguing that the owner's actions made the space unusable for its business. The owner argued that the franchisor didn't have the right to sue because it wasn't a party to the lease.

A Connecticut appeals court ruled that the franschisor could sue the owner. The court said that the rider gave the franchisor the contractual right to decide whether to exercise its right to the conditional assignment. By altering the space to make it unusable for the franchisor's business, the owner “destroyed the object” of the rider and thus committed an “anticipatory breach” of contract, the court explained. So the court sent the lawsuit back to the lower court for further proceedings [Cottman Transmission Systems, Inc. v. Hocap Corp.].