Court Opinion

ID: 9406233
Source: CourtListenerOpinion
Date Created: 2023-06-30 14:07:05.677329+00
Date Added: 2024-06-11T17:20:27.742189
License: Public Domain

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21-P-1147                                              Appeals Court

INLAND COMMERCIAL REAL ESTATE SERVICES, LLC      vs.   ASA EWC, LLC.1

                            No. 21-P-1147.

            Worcester.     March 3, 2023. – June 30, 2023.

             Present:    Wolohojian, Shin, & Hodgens, JJ.

Real Property, Lease. Contract, Lease of real estate,
     Performance and breach. Damages, Breach of contract.
     Landlord and Tenant, Rent. Summary Process, Notice to
     quit. Practice, Civil, Summary process.

     Summary Process. Complaint filed in the Superior Court
Department dated May 20, 2021.

    The case was heard by William J. Ritter, J.

     Howard B. D'Amico for the defendant.
     Ryan K. O'Hara (Christopher D. Pierson also present) for
the plaintiff.

    SHIN, J.     Inland Commercial Real Estate Services, LLC

(Inland), filed a summary process action in the Superior Court

against its commercial tenant, ASA EWC, LLC (EWC), seeking

    1   Doing business as European Wax Center.
                                                                     2

unpaid rent and possession of the leased premises.    After a

jury-waived trial, an amended judgment entered in favor of

Inland awarding both damages and possession.     EWC appeals,

arguing that shutdown orders issued by the Governor during the

COVID-19 pandemic, which caused a three-month closure of EWC's

business, frustrated the purpose of the lease.    As a result, EWC

argues, it should not be held liable for the rent that it failed

to pay during the closure period, and Inland should not have

been awarded possession because the notice to quit included a

demand that EWC pay the rent owed during the closure period.     We

affirm.

    Background.    On September 8, 2016, EWC entered into a

commercial lease with Inland for the operation of a "European

Wax Center" business at Inland's shopping center property in

Shrewsbury.   The lease had a term of ten years, with monthly

minimum rent ranging from $6,260 to $7,011.20, and options for

two five-year renewals.

    In early March 2020, the Governor declared a state of

emergency in Massachusetts because of the outbreak of COVID-19.

On March 23, 2020, the Governor issued COVID-19 Order No. 13,

which required all nonessential businesses to "close their

physical workplaces and facilities . . . to workers, customers,

and the public as of 12:00 noon on March 24, 2020."     Order

Assuring Continued Operation of Essential Services in the
                                                                      3

Commonwealth, Closing Certain Workplaces, and Prohibiting

Gatherings of More Than 10 People, COVID-19 Order No. 13 (Mar.

23, 2020).   As mandated, EWC closed its in-person business

operations on March 24 and remained closed as several successive

orders extended the restrictions.   Finally, on June 19, 2020,

the Governor issued COVID-19 Order No. 40, allowing businesses

like EWC's to reopen to the public on June 22, 2020.     EWC

resumed its in-person operations by July 2020.

    EWC failed to make any payments toward two quarterly water

charges and its rent obligations for March through September

2020.   On September 1, 2020, Inland sent EWC a "Five (5) Day

Notice" (notice to quit) informing EWC that it owed $55,531.66

under the lease.   This amount included the rent for the three

months during which the COVID-19 shutdown orders were in place.

The notice to quit stated that, unless EWC paid the full amount

due within five days of service, Inland was entitled to

terminate EWC's right to possession.

    Following receipt of the notice to quit, EWC made one

payment of $7,895.15 in late September 2020.     On March 10, 2021,

Inland sent another notice, this time terminating EWC's tenancy

for nonpayment of rent.   At the time of trial in September 2021,

EWC remained in possession of the premises but had made only one

more payment after September 2020, which did not bring the rent

current.
                                                                     4

    EWC raised various affirmative defenses in response to

Inland's summary process complaint, including frustration of

purpose and failure to give legally sufficient notice before

terminating the lease.    At the close of the jury-waived trial,

the judge found that there was no frustration of purpose, that

the notice to quit was valid, and that Inland had made a prima

facie case for possession.    An amended judgment entered awarding

Inland possession and $86,841.64 in damages, which included the

amount of rent that EWC owed for the three months in question.

    Discussion.     "When reviewing the decision of a trial judge

in a summary process action, 'we accept [the judge's] findings

of fact as true unless they are clearly erroneous,' but 'we

scrutinize without deference the legal standard which the judge

applied to the facts.'"    Cambridge St. Realty, LLC v. Stewart,

481 Mass. 121, 123 (2018), quoting Andover Hous. Auth. v.

Shkolnik, 443 Mass. 300, 306 (2005).

    1.   Damages.   EWC argues that the damages award should be

reduced because the COVID-19 shutdown orders and resulting

economic repercussions for EWC's business frustrated the purpose

of the lease, thereby discharging EWC's obligation to pay rent

from March 24, 2020, through June 22, 2020.    We recognize that

the COVID-19 pandemic created enormous hardships for many,

businesses and individuals alike.   Nevertheless, we agree with

the judge that the shutdown orders did not give rise to a valid
                                                                       5

frustration of purpose defense so as to excuse EWC from

performing under the lease.

    The doctrine of frustration of purpose excuses performance

under a contract in limited circumstances "where unanticipated

supervening events require it."   Le Fort Enters., Inc. v.

Lantern 18, LLC, 491 Mass. 144, 150 (2023).    Specifically,

"[w]here . . . 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 contract provides otherwise.       Chase

Precast Corp. v. John J. Paonessa Co., 409 Mass. 371, 375

(1991), quoting Restatement (Second) of Contracts § 265 (1981).

For the doctrine to apply, the purpose that is frustrated "must

be so completely the basis of the contract that, as both parties

understand, without it the transaction would make little sense."

Le Fort Enters., Inc., supra at 161, quoting Restatement

(Second) of Contracts § 265 comment a.   The doctrine is

construed narrowly "so as to preserve the certainty of

contracts," and the party asserting frustration of purpose as a

defense bears the burden of establishing it.    Le Fort Enters.,

Inc., supra at 151, quoting 17A Am. Jur. 2d Contracts § 641

(2022).
                                                                    6

     In the context of the COVID-19 pandemic, the vast majority

of courts to have considered frustration of purpose have

declined to apply the doctrine to temporary business closures

caused by government shutdown orders.   See, e.g., SVAP III Poway

Crossings, LLC v. Fitness Int'l, LLC, 87 Cal. App. 5th 882, 895

(2023); Critzos v. Marquis, 256 Md. App. 684, 700-701 (2023).

See also Highlands Broadway OPCO, LLC v. Barre Boss LLC, 2023

COA 5, ¶19 (Colo. App. 2023) (collecting cases).2   In reaching

that result, courts have looked to the duration of the closure,

the length of the lease, how far into the lease term the closure

occurred, and whether the tenant could have reopened its

business once the COVID-19 restrictions were lifted.   See 9795

Perry Highway Mgt., LLC v. Bernard, 273 A.3d 1098, 1106-1107

(Pa. Super. 2022) (no substantial frustration where closure was

"relatively short-term," occurred more than two years into

lease, and tenants "could have reopened, albeit at a reduced

capacity," in June 2020 had they not vacated).   Also relevant is

whether the tenant remained in possession of the premises during

the closure period, see SVAP III Poway Crossings, LLC, supra at

891-892; Fitness Int'l, LLC v. National Retail Props., LP, 524

P.3d 1057, 1065 (Wash. Ct. App. 2023), and whether the tenant

     2 EWC heavily relies on a Superior Court judge's contrary
decision in UMNV 205-207 Newbury, LLC vs. Caffé Nero Ams., Inc.,
Mass. Sup. Ct., No. 2084CV01493-BLS2 (Suffolk County Feb. 8,
2021), but that decision is not binding precedent.
                                                                   7

could have used the premises for business uses not barred by the

shutdown orders, see AGW Sono Partners, LLC v. Downtown Soho,

LLC, 343 Conn. 309, 336 (2022) (lease terms, which allowed

takeout and outdoor dining, did not "render the lease agreement

valueless in light of the executive orders" barring indoor

dining); Critzos, supra at 699 (similar); Fitness Int'l, LLC,

supra at 1064 ("In leasing, the frustration defense is

unavailable if a lease allows the tenant to put the premises to

another use").

    Here, EWC has not shown that the temporary closure caused

by the pandemic substantially frustrated the principal purpose

of the lease.    EWC was already over three years into the ten-

year lease when the Governor issued the first shutdown order.

EWC was forced to close its in-person operations for three

months, a relatively short time compared to the overall lease

term, during which it remained in possession of the premises and

had the ability to sell some goods.   Because the closure was

temporary and occurred well into the lease term, and EWC was

able to resume operations soon after, EWC has not established

that the purpose of the lease was so frustrated that the

transaction between the parties "make[s] little sense."    Le Fort

Enters., Inc., 491 Mass. at 161, quoting Restatement (Second) of

Contracts § 265 comment a.    See SVAP III Poway Crossings, LLC,

87 Cal. App. 5th at 895 (temporary closure caused by COVID-19
                                                                        8

shutdown orders did "not amount to the kind of complete

frustration" of long-term lease "required for the doctrine to

apply").   Cf. Le Fort Enters., Inc., supra at 162-163

(frustration of purpose did not excuse defendants' obligations

to make payments on promissory note executed nineteen months

before start of pandemic, despite economic hardships created by

shutdown orders).

    We are not persuaded by EWC's contention that the shutdown

orders caused a "temporary" frustration of purpose so as to

excuse EWC from paying rent during the period that the orders

were in effect.     The frustration of purpose doctrine is intended

to address the circumstance where an unanticipated event

entirely or substantially destroys the overall purpose of the

contract, "thus destroying the value of performance"; ordinarily

therefore, the legal effect of a successful frustration defense

is that "the parties are excused from further performance."

Chase Precast Corp., 409 Mass. at 374.     Cf. SVAP III Poway

Crossings, LLC, 87 Cal. App. 5th at 896 (because frustration of

purpose is available only where value of contract has been

"totally or substantially destroyed" and counterperformance is

no longer valuable, successful assertion of defense "compels the

termination of the contract" under California law).     But here,

EWC does not seek to be excused from further performance.       Quite

to the contrary, EWC continued to operate its business at the
                                                                    9

premises once the COVID-19 restrictions were lifted and then

challenged Inland's claim for possession, demonstrating that the

purpose of the lease was not destroyed.

    It is true, as EWC points out in a postargument letter,

that the Supreme Judicial Court has said, in dicta, that "the

frustration of purpose defense can be temporary."   Le Fort

Enters., Inc., 491 Mass. at 161.   But in that situation, "the

defense will suspend, rather than discharge, a duty to perform

unless the party's 'performance after the cessation of the . . .

frustration would be materially more burdensome than had there

been no . . . frustration'" (emphasis added).   Id., quoting

Restatement (Second) of Contracts § 269.   Thus, even if EWC

could show that the purpose of the lease was temporarily

frustrated, the temporary frustration would have merely

suspended, not discharged, EWC's obligation to pay rent during

the closure period.    See Restatement (Second) of Contracts § 269

comment a ("When the circumstances giving rise to the . . .

frustration cease to exist, [the party] must then perform").

    2.   Possession.   The preceding discussion disposes of EWC's

argument that the notice to quit was defective because it

included a demand that EWC pay the three months of rent owed

during the closure period.   Because the frustration of purpose

doctrine did not excuse EWC from paying rent for those three

months, there was no error in the notice to quit, nor is there
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any evidence that EWC was misled by the notice.   See Cambridge

St. Realty, LLC, 481 Mass. at 130 ("To be defective such that it

fails to terminate a lease, a notice to quit must involve a

material error or omission, i.e., a defect that has some

meaningful practical effect"); Rockport Schooner Co. v. Rockport

Whale Watch Corp., 58 Mass. App. Ct. 910, 911 (2003) ("a notice

to quit may be rendered invalid by false or misleading

statements").   We add that EWC cites no authority to support its

suggestion that a landlord must anticipate a tenant's

affirmative defenses, and identify or account for them in the

notice to quit, in order for the notice to be deemed valid.

                                    Amended judgment affirmed.