Court Rules COVID Shutdown Doesn’t Cancel Rent

Shrewsbury Tenant Argued “Frustration of Purpose” Doctrine
By Christopher R. Vaccaro
Special to Banker & Tradesman

Many disrup­tions from the COVID pan­demic are now behind us, but litigation related to those disruptions continues to work its way through Massachu­setts courts.

Last month, the Appeals Court decided Inland Commercial Real Estate Services, LLC v. ASA EWC, LLC, involving a commer­cial tenant’s failure to pay rent. The tenant signed a 10-year lease in 2016, to operate a “European Wax Center” in Shrewsbury. Three years later, in March 2020, Gov. Char­lie Baker issued COVID-19 Order No. 13, re­quiring non-essential businesses, including the wax center, to close. The tenant com­plied with the order and did not reopen until July 2020, after the governor issued a new order ending the shutdown.

After the tenant failed to pay rent and water charges for March through Septem­ber 2020, the landlord sent it a notice to quit, claiming over $55,000 in delinquent rent, some of which accrued during the three-month shutdown period. The tenant made a partial payment, but did not bring the rent current. The landlord terminated the lease and filed suit in superior court to evict the tenant.

In contesting the eviction, the tenant ar­gued that it should not have to pay rent for the three-month period when the COVID shutdown order prohibited it from doing business. The tenant supported this argu­ment with the often-invoked, but rarely suc­cessful, frustration of purpose doctrine.

The Supreme Judicial Court summarized the frustration of purpose doctrine in a 1991 decision, as follows: “Where, after a con­tract is made, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occur­rence of which was a basic assumption on which the contract was made, his remaining duties to render performance are dis­charged, unless the language or the circum­stances indicate the contrary.” When con­sidering this defense, courts look at whether unforeseen circumstances effec­tively negated the value of the contract to the party who invoked the defense.

Unforeseen Circumstances Can Negate Contracts

In the case of the Shrewsbury wax cen­ter, the Superior Court judge rejected the tenant’s frustration of purpose defense, and entered judgment awarding the landlord possession of the leased premises and $86,841 in damages. The tenant appealed, and the Appeals Court offered a useful anal­ysis of the doctrine, before affirming the Su­perior Court’s judgment.

The Appeals Court noted that the frustra­tion of purpose doctrine excuses a party from performing its contractual obligations “where unanticipated supervening events require it.” For the doctrine to apply, the purpose that is frustrated must be so intrin­sic to the reason for the contract, that the contract makes little sense without it. Courts are generally reluctant to apply the doctrine, preferring instead to preserve the certainty of contracts.

The Appeals Court also noted that most courts decline to apply the doctrine to tem­porary business closures caused by govern­ment shutdown orders. When evaluating frustration of purpose defenses in govern­ment shutdown cases, courts consider the duration of the forced closures, the length of the lease term, how far into the lease term the closure occurred, whether tenants could reopen after restrictions were lifted, whether tenants remained in possession of the prem­ises during the shutdown and whether ten­ants could use their premises for purposes not barred by the shutdown order.

Temporary Shutdown Not a Dealbreaker

Taking these factors into account, the Ap­peals Court found the tenant’s frustration of purpose argument unpersuasive. It noted that the tenant did not show that its tempo­rary closure substantially frustrated the pur­pose of the lease. The tenant was already three years into its lease when the shutdown occurred, the three-month shutdown was relatively short compared to the 10-year lease term, the tenant remained in posses­sion of the premises during the shutdown and could sell goods from the premises, and the tenant was able to resume its business after the shutdown was lifted.

The Appeals Court also rejected the ten­ant’s argument that a temporary frustration of purpose should excuse the tenant from paying rent during the shutdown period. The court found that the doctrine provides relief to parties who see the anticipated benefits of their bargains destroyed by un­foreseen events, not merely interrupted on a temporary basis.

The Appeals Court went on to state that even if the doctrine were available on a temporary basis, the tenant’s obligation to pay rent during the shutdown period would only be suspended, not discharged alto­gether. The court affirmed the Superior Court’s judgment.

This decision shows that the tenants who invoke the frustration of purpose doctrine to avoid rent payments will most likely be frustrated by unfavorable court rulings.

Download the article as seen in  Banker & Tradesman on June 26, 2023. Learn more about Christopher R. Vaccaro.