Opinion ID: 3211949
Heading Depth: 1
Heading Rank: 2

Heading: MBP’s Appeal

Text: ¶ 47. MBP challenges the trial court’s award of monetary damages in lieu of terminating the lease and evicting the Association members. ¶ 48. The ground lease provided, “in the event that an Event of Default shall have occurred, [and] upon issuance of a writ of possession, the rights of the Lessee . . . shall immediately cease and become void.” It further stated, “[i]f any Event of Default shall have occurred and be continuing, whether or not the term of this lease shall have been terminated pursuant to the Lease, the Lessor may enter upon and repossess the Land or any part thereof pursuant to Vermont law.” On the basis of these provisions, MBP sought a declaratory judgment that the lease was terminated and that MBP was entitled to repossess the property, as well as a writ of possession. ¶ 49. Although the trial court concluded that the Association had breached the lease by committing waste, the trial court concluded that forfeiture of the lease—which otherwise extended to 2036—“would be especially inequitable, and a sanction entirely out of proportion to the lease violations.” Accordingly, the trial court declined to declare the lease terminated or to issue a writ of possession in favor of MBP. 17 ¶ 50. MBP contends that the trial court lacked the authority to conduct the kind of equitable balancing that it undertook in this case and that the trial court should have enforced the terms of the lease. Alternatively, MBP argues that even if the trial court did have discretion to decline to enforce the forfeiture provision, it exceeded its discretion in doing so here. ¶ 51. The general maxim that forfeiture under a lease is disfavored by law is well established in our cases, but this general statement of policy does not support the suggestion that in the face of an established default and a lessor’s timely invocation of a contractual right to terminate, a court may decline to terminate the lease pursuant to its terms. See Osgood v. Cent. Vt. R. Co., 77 Vt. 334, 343-44, 60 A. 137, 140 (1905) (discussing important policy of enforcing parties’ contracts) ¶ 52. This Court has often repeated the general proposition that forfeiture under a lease is disfavored by the law. See, e.g., Willard v. Benton, 57 Vt. 286, 289 (1884) (“The law does not favor forfeitures.”); Powell v. Merrill, 92 Vt. 124, 127, 103 A. 259, 262 (1918) (“Forfeitures are not favored by the law.”); Hinsman v. Marble Sav. Bank, 100 Vt. 48, 50, 134 A. 635, 636 (1926) (Hinsman I) (“Forfeitures are not favored by law, and the mere breach of a covenant does not work a forfeiture, unless it be one that disaffirms or impugns the title of the lessor and tends to defeat the reversion.” (citations omitted)); Champlain Oil Co. v. Trombley, 144 Vt. 291, 297, 476 A.2d 536, 539 (1984) (“[F]orfeitures are not favored in equity”); Zurmuhlen v. Uchida, 153 Vt. 165, 168, 569 A.2d 480, 482 (1989) (quoting Hinsman I). ¶ 53. In the context of leases, this general policy against forfeitures has supported several requirements prerequisite to imposition of a forfeiture remedy. First, this Court has held that a breach alone will not support forfeiture absent a “special stipulation” or agreement to that effect. See Powell, 92 Vt. at 127, 103 A. at 262 (“The mere breach of a covenant contained in the lease does not in the absence of a special stipulation, work a forfeiture of the term or give the landlord a right of re-entry.”). 18 ¶ 54. Second, this Court has consistently construed forfeiture clauses narrowly, and required strict proof to support a forfeiture remedy. See id. (“[S]tipulations [for forfeiture] are construed strictly.”); Waterman v. Clark, 58 Vt. 601, 605, 2 A. 578, 581 (1886) (“The law does not favor forfeitures. It will not declare one upon implication. Strict proof is always required.”) Benton, 57 Vt. at 289 (“The law does not favor forfeitures; nor would declare one by implication, but would require strict proof.”); see also Palmer’s Ex’r v. Ryan, 63 Vt. 227, 228, 22 A. 574, 574 (1891) (“All contracts under which forfeitures are claimed are to be construed strictly to avoid such result.”). ¶ 55. Third, the law requires that the breach supporting a judgment of forfeiture “not be trivial or technical.” Champlain Oil Co., 144 Vt. at 297, 476 A.2d at 539 (citing Houghton v. Cook, 91 Vt. 197, 205, 100 A. 115, 119 (1917)); see also Hinsman I, 100 Vt. at 50, 134 A. at 636 (“Forfeitures are not favored by law, and the mere breach of a covenant does not work a forfeiture unless, it be one that disaffirms or impugns the title of the lessor and tends to defeat the reversion.”); Century Partners, LP v. Lesser Goldsmith Enters., Ltd., 2008 VT 40, ¶ 24 184 Vt. 215, 958 A.2d 627 (holding that where tenant’s certificate of occupancy violation is technical in nature, landlord may not cause forfeiture of tenancy and removal of tenant on account of such violation unless landlord cooperates in good faith to attempt to cure it). ¶ 56. And finally, the law requires a timely affirmative act by the lessor to invoke the forfeiture provision. This requirement is the most developed corollary of the general policy disfavoring forfeiture of leases, and most cases, in Vermont and other states, that cite the policy disfavoring forfeiture of leases, involve this imperative. For example, in the case of Houghton v. Cook, this Court explained that the breach of a condition in a lease, with the right to enter thereon, does not in itself terminate the lessee’s interest. 91 Vt. 197, 203-04, 100 A. 115, 119 (1917). The Court explained: Such a breach is the ground of a forfeiture, but the forfeiture arises from the lessor’s act. It is optional with [the lessor] to claim a forfeiture or to waive it, and if [the lessor] would treat the breach 19 as a forfeiture [the lessor] must promptly evince [this] purpose by some distinct and positive act. Id. ¶ 57. In Hinsman v. Marble Savings Bank—a case that came to this Court three times—this Court established that a timely action for ejectment is sufficient to invoke the forfeiture provision. Hinsman I, 100 Vt. at 48, 134 A. at 635. In Hinsman I, a tenant bank sublet the leased space to a fruit vendor, and the lessor sought termination of the lease and possession of the premises on account of the bank’s alleged breach of the lease. This Court concluded that the sublease may have violated an implied duty in the lease, but that ejectment was not available for breach of a covenant implied by law. Id. at 50, 134 A. at 636. The Court accordingly declined to terminate the lease on account of the bank’s sublease. ¶ 58. The case came back to the Court, this time in connection with the lessor’s claim that the bank breached the covenant to use and manage the premises in a good and husbandlike manner. Hinsman v. Marble Sav. Bank, 102 Vt. 217, 147 A. 270 (1929) (Hinsman II). The Court acknowledged that the bank had breached the express covenant for good husbandry, but explained, “[T]he mere breach of a covenant contained in a lease does not, in the absence of special stipulation, work a forfeiture of the term or give the landlord a right of entry, unless (as is not the case here) it is one that disaffirms or impugns the title of the lessor and tends to defeat reversion.” Id. at 221, 147 A. at 271. The Court reiterated that it is incumbent on the lessor to claim the forfeiture by promptly evincing such purpose by “some distinct and positive act.” Id. The Court acknowledged that the lessor’s bringing of an action to recover possession could constitute its reentry, thereby timely terminating the lease, but was unclear as to whether the lessor had invoked the breach of the covenant for good husbandry in the initial ejectment action. Id. at 222-23, 147 A. at 272. It remanded for a determination on that point. ¶ 59. The third time around, this Court affirmed a judgment for the lessor. Hinsman v. Marble Sav. Bank, 104 Vt. 40, 156 A. 874 (1931) (Hinsman III). On remand the lessor had 20 demonstrated that the initial ejectment action was premised in part on the covenant of good husbandry and was litigated accordingly. This Court reiterated that the bank’s breach of the covenant, standing alone, did not work a forfeiture, because a forfeiture requires reentry, an action of ejectment, or some act unequivocally manifesting the lessor’s intention to claim the forfeiture and terminate the lease. Id. at 42-43, 156 A. at 875. But having confirmed that the lessor in this case did timely elect the forfeiture remedy by filing an action for ejectment based on the covenant breach, this Court affirmed the judgment for the lessor. ¶ 60. More recently, this Court has relied on the reasoning in the Hinsman cases in denying a landlord forfeiture under a lease. In Zurmuhlen, in November 1985, a commercial tenant made renovations to the leased space without the landlord’s approval. In January 1986, the landlord notified the tenant that the renovations violated the lease and offered to renegotiate the lease to reflect increased rent. The letter threatened litigation but did not invoke the forfeiture clause of the lease and did not give the tenant thirty days to cure. Only in March 1986 did landlord give tenant notice of her intent to terminate the lease on the basis of the default. We affirmed the trial court’s conclusion that the landlord had waived her forfeiture right by failing to take action to terminate the lease promptly. 153 Vt. at 168-69, 569 A.2d at 489. ¶ 61. Although the law disfavors forfeiture clauses, this Court has never declined to enforce a contractual forfeiture provision when the landlord timely invoked the forfeiture right. Although the Hinsman decisions are frequently cited in support of the policy disfavoring forfeiture, ultimately this Court concluded that the lessor in that case had timely acted to terminate the lease by filing an ejectment action based on the lessee’s breach of the lease terms, and thus affirmed a judgment for the lessor. Hinsman III, 104 Vt. at 43-44, 156 A. at 875-76. ¶ 62. Likewise, this Court affirmed a forfeiture in favor of a commercial landlord on the basis of an arguably quite modest default. See Champlain Oil Co., 144 Vt. at 291, 476 A.2d at 536. In Champlain Oil Co., a Champlain Oil Company leased a gas station and store to Trombley. In addition to other terms, the parties’ agreement provided that once Champlain Oil 21 finished installing delicatessen equipment in the store, Trombley would begin paying $75.00 weekly against its outstanding gasoline consignment account balance with Champlain Oil, which exceeded $20,000 at that point. The parties’ agreement provided that if Trombley failed to perform any of his obligations under the agreement, and such failure continued for a period of seven days, Champlain Oil could lawfully declare termination of the agreement and reenter the premises. Champlain Oil completed installing the equipment on May 11, and Trombley began paying $75.00 weekly against the gas balance sometime in July. Trombley’s $75 check for the week of September 16 bounced and remained outstanding for over seven days. This bounced check was the basis for Champlain Oil’s termination, request to vacate, and complaint for ejectment. In affirming the ejectment, this Court acknowledged that, “[t]o support a judgment of forfeiture, the breach complained of may not be trivial or technical.” Id. at 297, 476 A.2d at 539. And we recognized that “[a] court of equity will generally relieve a party who has not performed [the] contract strictly as to time, unless it appears affirmatively that the parties regarded time as an essential element in their agreement.” Id. (quotation omitted). But this Court upheld the ejectment on the basis of the trial court’s finding that prompt payment of the $75.00 weekly check was an essential element of the agreement between the parties, and that defendant’s failure to timely pay, lasting over seven days, amounted to a material breach. Id. at 297, 476 A.2d at 539-40. ¶ 63. This is a case of first impression insofar as the Association urges us to rely on our general policy disfavoring forfeitures to authorize the trial court to invoke general equitable considerations in declining to enforce a contractual agreement providing for forfeiture in the event of default, even though the lessor timely invoked the clause and elected termination.3 We decline to do so for several reasons. 3 The Association does not contend that MBP failed to timely terminate the lease on account of the breach. Nor could it. See supra, ¶¶ 9-13. The record reflects that MBP’s September 28, 2011 notice to the Association not only enumerated the Association’s claimed defaults, but specifically provided the Association with forty-five days to remedy the defaults 22 ¶ 64. First, our precedent does not support setting aside clearly applicable, contractedfor remedies. As set forth above, our own cases subject forfeiture claims to close scrutiny. We construe contractual forfeiture clauses narrowly and require strict proof to support a forfeiture. See supra, ¶¶ 54-55. We require the party seeking forfeiture to clearly and timely invoke the remedy. See supra, ¶ 57. And we have cautioned that a trivial or technical breach cannot support a judgment of forfeiture. Champlain Oil Co., 144 Vt. at 297, 476 A.2d at 539. But we have never suggested that in the context of a long-term ground lease negotiated by sophisticated parties, one party may be relieved of the contracted-for consequences of its breach on equitable grounds. As we noted in a related context, the tendency of the law toward expanding contractual defenses “should be regarded with great caution since there is danger that courts, in their desire to relieve parties in hard cases, may go too far.” Retail Merchs.’ Bus. Expansion Co. v. Randall, 103 Vt. 268, 271, 153 A. 357, 358 (1931). We explained, “[t]he province of courts is to construe and enforce contracts, not to make or modify them.” Id.; cf. Finn v. Meighan, 325 U.S. 300, 301 (1945) (explaining that bankruptcy court does not look with favor upon forfeiture clauses in leases, but that express covenant of forfeiture has long been held to be enforceable against bankruptcy trustee). ¶ 65. Second, we rely on the Restatement, which provides that if the tenant makes impermissible changes to the physical condition of the leased property, and the leased property cannot be restored to its former condition, or has not been restored to its former condition promptly after a request from the landlord to do so, the landlord may terminate the lease and and indicated that if the Association failed to cure the defaults within that time frame MBP could enter and repossess the property and take all lawful steps to terminate the lease. MBP then filed an ejectment claim on January 9, 2012. The delay in invoking the termination remedy that defeated the lessor’s claim in Zurmuhlen, and was the subject of this Court’s extended inquiry in Hinsman II and Hinsman III, is not an issue in this case. Moreover, although the trial court concluded in this case that the remedy of forfeiture was disproportionate to the default, the trial court’s findings cannot be interpreted to support the conclusion that the breach in this case was “trivial” or “technical.” The trial court concluded that the cost of restoring the damaged banks was over $128,000. 23 recover damages, continue the lease and recover damages, and, in an appropriate case, obtain equitable relief. Restatement (Second) of Property: Landlord & Tenant § 12.2(2); see also id., cmt. h (explaining that landlord can assert above remedies only if tenant does not restore leased property to its former condition promptly, meaning “as rapidly as possible” after request to do so); id. rep. note 10 (noting that Restatement adopts position that termination is available remedy for waste as long as landlord gives tenant opportunity to restore leased property to its former condition before terminating lease). ¶ 66. The Restatement makes it clear that the election to terminate a lease belongs to the landlord, not the defaulting tenant or the trial court. See id. § 13.1 (stating that if tenant fails to perform valid promise and landlord is thereby deprived of significant inducement to making of lease, if tenant does not perform within reasonable period of time after being requested to do so, landlord may elect to terminate lease and recover damages); id. cmt. c (noting if repairs are needed because tenant has committed waste, landlord’s remedies, including election to terminate lease, is in no way restricted by tenant’s promise to repair); id. cmt. k (“The lease is not automatically terminated by the tenant’s failure to perform a promise. The right to terminate given the landlord under the rule of this section is an option to terminate the lease. The exercise of this option requires that the landlord notify the tenant that [the landlord] has elected to terminate the lease for the failure of the tenant to perform a promise within a reasonable time after being requested to do so.”). See id., rep. note 9 (“Where the lease so provides, the right to terminate is widely recognized, for example, for the tenant’s failure to repair as promised.”). In short, in the face of a default and waste as found by the trial court in this case, the Restatement recognizes that the landlord, not the trial court, is empowered to elect among the available remedies, including termination of the lease pursuant to its terms. ¶ 67. Whatever inequity might otherwise result from enforcement of a forfeiture provision is considerably mitigated by the opportunity afforded to the lessee to promptly restore the property to its pre-breach condition. See, e.g., Mayflower Assocs. v. Elliott, 81 So.2d 719, 24 720 (Fla. 1955) (en banc) (recognizing that equity may provide relief against forfeiture of long term lease for failure to pay required rent, but that primary condition precedent to relief against forfeiture is that tenant effectively and in good faith tender payment of arrears of rent). In this case, the trial court found that the Association failed to avail itself of this opportunity, adhering to the unsupportable view that the Association itself, as contrasted with the individual camp owners, had no obligation to restore the property. ¶ 68. Finally, we note that our statutes have long contemplated the ejectment of tenants on the basis of a breach of a stipulation contained in a lease. In particular, 12 V.S.A. § 4851 provides, “after breach of a stipulation contained in the lease by the lessee . . . , the person entitled to the possession of the premises may have from the presiding judge of the superior court a writ to restore him or her to the possession thereof.” This Court has recognized that ejectment under this statute “is not confined to forfeitures claimed by reason of nonpayment of rent,” and that “[w]here a forfeiture for some reason other than nonpayment is sought . . . the tender [of all rent due] will not abate the action.” Canfield v. Hall, 121 Vt. 479, 482, 484, 160 A.2d 768, 77071 (1960). This Court noted, “[t]he defendants by . . . paying money into court as rent, cannot deprive the plaintiffs of their right to ejectment for a breach of other stipulations in the lease.” Id. at 484, 150 A.2d at 771. ¶ 69. For these reasons, we conclude that on the basis of the trial court’s findings that the Association had substantially defaulted pursuant to the terms of the ground lease, and given that MBP timely and clearly asserted its election under the terms of the contract to terminate the lease, on this record MBP was entitled to terminate the ground lease as a matter of law, and is entitled to a writ of possession. Reversed and remanded for determination of a remedy in light of the above. FOR THE COURT: