Facts
- A landlord and café operator executed a 15-year commercial lease beginning June 1, 2017 for a basement-level space on Newbury Street in Boston.
- The lease tightly restricted use to operating a “Caffé Nero themed café” under the tenant’s trade name “and for no other purpose,” with operation consistent with other sit-down locations and only limited take-out from the sit-down menu.
- On March 24, 2020, a statewide emergency order prohibited restaurants from allowing on-premises consumption of food or beverages.
- The tenant closed for on-premises dining and stopped paying rent starting in April 2020, asserting it could not lawfully operate as required by the lease.
- The landlord issued a default notice, purported to terminate the lease in May 2020, pursued eviction, and filed a contract action seeking unpaid rent and other amounts.
- After restrictions partially loosened in June 2020, the tenant resumed limited operations but did not pay the demanded fixed rent; the landlord rejected an alternative percentage-rent proposal.
- The tenant vacated in late October 2020.
- The landlord moved for partial summary judgment on liability and certain amounts of rent and fees through the vacancy date; the tenant opposed based on frustration of purpose.
Issues
- Whether a government-ordered ban on on-premises dining substantially frustrated the lease’s principal purpose so as to discharge the tenant’s rent obligation from March 24 to June 22, 2020.
- Whether the lease’s force majeure clause or independent-covenant (“hell-or-high-water”) language barred a frustration-of-purpose defense.
- Whether the landlord was entitled to summary judgment for rent/holdover-type amounts from June 22 to October 29, 2020.
Decision
- The court denied the landlord’s motion for partial summary judgment as to rent owed during the period when on-premises consumption was prohibited.
- The court ruled that frustration of purpose discharged the tenant’s obligation to pay rent while indoor on-premises dining was barred, at least from March 24 to June 22, 2020.
- The court concluded the tenant’s nonpayment during that period was not a breach and that termination premised on that alleged default was improper to that extent.
- The court held the lease’s force majeure clause and independent-covenant language did not preclude frustration of purpose.
- Despite the tenant not filing its own summary judgment motion, the court entered partial summary judgment for the tenant on the frustration-of-purpose issues.
- The court declined to grant summary judgment on claims for amounts allegedly due after June 22, 2020, finding factual disputes.
Legal Principles
- Frustration of purpose may discharge remaining contractual duties when (i) a supervening event occurs after contracting, (ii) nonoccurrence was a basic assumption, (iii) the event substantially frustrates the contract’s principal purpose, and (iv) the party seeking discharge is not at fault and the contract does not clearly allocate the risk to that party.
- A narrowly drafted permitted-use clause can define the contract’s principal purpose and support a finding of substantial frustration when the specified use becomes unlawful by government order.
- Force majeure provisions focused on impossibility of performance do not necessarily address or waive frustration of purpose, which concerns loss of contractual value even if payment is still physically possible.
- Independent-covenant language does not bar frustration of purpose absent clear, specific contractual allocation of the risk of purpose-destroying events.
- A court may grant summary judgment to a nonmoving party on issues fully argued when no material fact dispute exists and the nonmovant is entitled to judgment as a matter of law.
Conclusion
The court held that pandemic-era orders prohibiting on-premises dining substantially frustrated a lease limited to operating a sit-down café, discharging the tenant’s rent obligation during the shutdown period, while leaving post-reopening rent and damages issues for further proceedings.