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.