MA Court Rules Tenant Does Not Owe Rent During COVID-19 Related Government Shutdown

UMNV 205-207 Newbury, LLC (referred to as “UMNV”) leased its Newbury Street location to Caffe Nero Americas, Inc. (referred to as “Caffé Nero”) for a 15-year term starting June 1, 2017. The lease stipulated that Caffé Nero was to use the leased premises “solely for the operation of a Caffé Nero themed café under Tenant’s Trade Name and for no other purpose,” and further that Caffé Nero was required to operate the café “in a manner consistent with other Caffé Nero locations in the Greater Boston area,” to serve food and beverages of “first class quality,” and could only offer take-out sales “from its regular sit-down restaurant menu.”

In late March 2020, due to COVID-19-related government executive orders, Caffé Nero was forced to cease serving customers inside of its location. As a result, Caffé Nero requested, and was denied, the opportunity to suspend its rent obligations under the lease. UMNV informed Caffé Nero that if rent was not paid it would be in breach of the lease agreement, and UNMV would began eviction proceedings. Before vacating the premises, Caffé Nero did not pay rent from April 2020 through October 2020.

UMNV brought suit to recover unpaid rent plus interest, administrative expenses, and liquidated damages for the remainder of the 15-year lease term. Caffé Nero invoked the doctrine of Frustration of Purpose as a defense for its breach of the lease agreement. Under this doctrine, a party to a lease or other contract is excused from its obligations under its lease or contract “when an event neither anticipated nor caused by either party, the risk of which was not allocated by the contract, destroys the object or purpose of the contract, thus destroying the value of the performance.”

The Massachusetts Superior Court agreed with Caffé Nero and granted partial summary judgment in its favor against UMNV’s breach of contract claim. The court noted that the main purpose of the lease agreement, as outlined above, was to operate a café consistent with other Caffé Nero locations and for no other purpose, and because that purpose was destroyed by COVID-19 government-related closures—closures that were not the fault of UMNV or Caffé Nero and could not have been anticipated by either party—Caffé Nero’s obligations to pay rent under the lease were discharged. If UMNV had allowed Caffé Nero to use the leased premises for other purposes not barred by government orders, then the fact the Caffé Nero’s intended use of the premises may have been destroyed may not have discharged its rent obligations. However, because the lease was so narrowly tailored, the Court ruled in favor of Caffé Nero as to its alleged breach of the lease agreement.

While this decision is limited to the facts of this case and should not be taken as a broad ruling excusing commercial lease payments during COVID-19, it does offer some leverage to commercial tenants that missed rent payments during the pandemic.