Court Says Landlord Cannot Evict Restaurant Tenant Despite Numerous Defaults

After a summary process trial before him (without a jury), a Superior Court judge recently held that a commercial landlord could not evict a tenant despite proving the tenant had repeatedly breached provisions in the lease because the breaches were not material. While the facts in making this decision were unique and specific to this case, the decision is an important reminder that in a commercial eviction, Courts have equitable power to sustain a lease despite a party’s clear breach of contractual terms, when the breaches are not material.

The facts in Varano v. PDJM Land Trust are the following. Varano is a commercial tenant who operates Nico Restaurante in Boston’s North End. PDJM Land Trust, LLC (“PDJM”), the landlord, operates Lucia Restaurant next door. Varano has a long-term lease that came into effect in 2008 when the leased property was owned by a previous landlord. In 2015, a successor landlord to the first landlord and Varano changed certain provisions of the lease, including an amendment to the lease that called for rent to be due “in advance in monthly installments.”  The current landlord, PDJM is the successor to the second landlord, and continued as such after Varano had exercised the option for a second ten-year term. During the first ten years of the lease, Varano had never paid the rent at the start of a month, but typically paid the rent around the middle of the month, and sometimes fell into arrears only to catch up in subsequent months.

Upon becoming the owner and lessor of the leased premises, PDJM immediately and continually informed Varano that the rental payments were due on or before the first of the month and protested when Verano delivered the rent well into the month. In fact, the Court found that after the execution of the amendment to the lease, Varano had NEVER paid its rent on time. Evidence of monthly contacts, including letters from the landlord’s counsel, were entered into evidence and clearly showed the tenant’s repeated breaches of the lease for failure to pay rent on time. Varano argued that every commercial tenant has a thirty-day grace period to pay rent, that it never fell into significant arrearage, and that it was continuing to operate as it had since 2008.

After being served with a formal Notice to Quit because of its contractual breaches, but before PDJM was able to file a summary process action, Varano brought a declaratory judgment action against the landlord in the Superior Court seeking to invalidate the notice to quit and sought a finding that the landlord had violated the implied covenant of good faith and fair dealing owed the tenant, and for violations of Mass. Gen. L. c. 93A. PDJM countered with a summary process action by way of a counterclaim seeking a declaration that the tenant had repeatedly breached its obligations under the lease.

The Court’s review of the facts and law on this case are well written and very detailed. In summary, the Court found that the tenant had indeed breached its obligations under the amended lease, finding that the continual late payments were breaches, and that some of the allegations of failure to maintain the premises may have had merit, even though the City of Boston never fined Nico Restaurante for failure to upkeep and clean the leased premises.

The Court reasoned that while failure to pay rent by the first of the month constituted a breach of the tenant’s lease obligations, the breaches were not material. Terminating the lease would create an undue hardship on Varano, who would be forced to forfeit over $500,000.00 in improvements over the years of its occupancy of the leased premises. The breaches were not so material as to hinder the landlord from paying its mortgage or tax obligations, and the rent, while delivered late, was always delivered. The Court noted that the lease allowed for the assessment of late payments when rent was delivered past the first of the month, and that this would be a proper remedy. Forcing a tenant to shutter its business weighed heavily in favor of the tenant in the balance of harm analysis.

Had the balance of harm tilted more towards the landlord, the outcome may have been different. However, in light of the facts of this case, even when a landlord could prove the tenant had systemic breaches of lease obligations, the breaches were not material and did not cause the landlord harm. Allowing an eviction to proceed would cause significant harm to the tenant. In the end, the Court denied the landlord the right to evict, and also held that there was no violation of the implied covenant of good faith and fair dealing where the landlord simply sought enforcement of contractual terms. The Court similarly denied the tenant’s 93A claims against the landlord.

The lesson to be learned here is that a landlord who seeks to evict a commercial tenant must do more than show that the tenant has breached some duty under the lease, but that the breach was material. The next step is to analyze the balance of harm the eviction would have on the tenant vis-à-vis the balance of harm to the landlord if the lease were to be upheld.