Massachusetts Court Excuses Tenant's Rent Due to COVID-19 Shutdown

In a case likely to send shock-waves through the Massachusetts commercial real estate market, a Massachusetts Superior Court Judge has ruled that a commercial tenant was not required to pay rent under its lease during the state's COVID-19 government-ordered shutdown. On February 8, 2021, Business Litigation Session Judge Kenneth Salinger determined that, based on the frustration of purpose doctrine, Caffe Nero was excused from having to make rent payments to its landlord while it was barred from opening due to the virus. Even though the lease had a force majeure provision and a so-called "independent covenant" clause, the lease did not allocate the risk of loss caused government orders addressing a global pandemic. The decision was made in UMNV 205-207 Newbury LLC v Caffe Nero Americas, Inc.

Under the frustration of purpose doctrine, where a contract does not specifically allocate the risk of an event, a party to a contract can be excused from performing its obligations when an unanticipated event, not caused by either party, destroys the object or purpose of the contract, and thus the value of performance. Applying the doctrine to Caffe Nero's lease, Judge Salinger reasoned that since the sole purpose of the lease was to operate a cafe for on-site dining and drinking, "it would have made no business sense" to require rent payments when the only permissible use of the premises was "no longer allowed or possible."

The disruption caused by the Covid-19 pandemic is forcing businesses, institutions and individuals to revisit their contracts to determine their rights and obligations, from payment to performance. The law provides a variety of defenses to contract enforcement, from payment to performance, including the defense of frustration of purpose. DeMoura|Smith attorneys Ken DeMoura and Paul Robertson have been advising clients on the impact of COVID-19 on their contractual rights and obligations. They have presented for the Boston Bar Association (webinar here) and the Boston Globe Small Business Support Initiative (webinar here) on the use of force majeure clauses and other defenses such as impracticability of performance and frustration of purpose. They have also published an article titled Performance Anxiety:Covid 19's Lingering Impact on Contractual Obligations outlining pragmatic steps to take when faced when contracts are impacted by the pandemic. A copy of the article is on the Firm's website here along with the PowerPoint presentations for the Boston Bar Association and for the Boston Globe Small Business Support Initiative.

Early review and analysis of the contracts and circumstances facing the parties is crucial in maximizing the likelihood of a favorable outcome. DeMoura|Smith attorneys are available to advise and advocate for your business on performance and payment issues arising from the pandemic and its after-effects.

Posted on Feb | 2021
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