## Facts

- Consumer Lending Associates, LLC (CLA) entered a five-year Arizona commercial lease in June 2007 for premises later owned by Next Gen Capital, LLC (Next Gen).
- The lease restricted use to (1) short-term loans and check cashing as the primary use and (2) money transfers as an ancillary use.
- CLA’s payday-lending operations depended on Arizona statutes governing deferred presentment companies, which contained a sunset provision and expired July 1, 2010.
- After the statutes expired, CLA vacated and stopped paying rent, asserting the lease terminated by operation of law.
- Next Gen sued for breach of contract, seeking unpaid rent and related charges through the remaining lease term.
- The superior court granted summary judgment to Next Gen and entered judgment for $144,899.06 plus interest, attorneys’ fees, and costs; it denied CLA’s motion for new trial.
- CLA appealed, arguing frustration of purpose excused performance and that Next Gen failed to prove mitigation of damages.

## Issues

1. Whether expiration of the payday-lending statute substantially frustrated the lease’s principal purpose so as to discharge CLA’s obligation to pay rent.
2. Whether, on summary judgment, Next Gen had to prove mitigation of damages, and whether mitigation presented a genuine dispute of material fact.

## Decision

- The court of appeals affirmed summary judgment for Next Gen.
- Frustration of purpose did not excuse CLA’s nonperformance because the statutory sunset was foreseeable and the lease did not allocate that regulatory risk to the landlord.
- Failure to mitigate was an affirmative defense; CLA failed to produce specific evidence creating a triable issue that Next Gen unreasonably failed to mitigate.
- The damages award and related relief (interest, attorneys’ fees, and costs) were upheld.

## Legal Principles

- Frustration of purpose is a narrow doctrine; discharge requires that a supervening event nearly or totally destroy the value of the contract to the affected party and that the event’s nonoccurrence was a basic assumption of the contract.
- A party that could reasonably foresee a potentially frustrating event and contracts anyway is generally treated as having assumed the risk absent contrary contractual allocation.
- A change in law affecting a party’s preferred business model does not, without more, establish frustration where the event was foreseeable and the contract still has potential lawful value or uses.
- In Arizona, a landlord has a duty to take reasonable steps to mitigate damages after a tenant’s breach, but failure to mitigate is an affirmative defense on which the tenant bears the burden to produce evidence.
- On summary judgment for unpaid rent, the landlord need not negate mitigation unless the tenant presents competent evidence showing a genuine issue on unreasonable failure to mitigate.

## Conclusion

The court held that a commercial tenant remained liable for rent after vacating when the enabling payday-lending statute expired by a known sunset provision, and that the tenant, not the landlord, bore the burden to produce evidence supporting a mitigation defense to defeat summary judgment.


Next Gen Cap. LLC v. Consumer Lending Assocs. LLC, 316 P.3d 598 (Ariz. Ct. App. 2013)