Umnv 205-207 Newbury, LLC v. Caffé Nero Americas Inc.
| Decision Date | 08 February 2021 |
| Docket Number | Dates: 2084CV01493-BLS2 |
| Parties | UMNV 205–207 NEWBURY, LLC v. CAFFÉ NERO AMERICAS INC. |
| Court | Superior Court of Massachusetts |
Dates: February 8, 2021
Present: Kenneth W. Salinger, Justice of the Superior Court
County: SUFFOLK, ss.
UMNV 205–207 Newbury, LLC, leased retail space to Caffé Nero Americas, Inc. One condition was that Caffé Nero could use the leased premises only to operate a “Caffé Nero themed café” and not for any other purpose. In March 2020 the Governor barred Massachusetts restaurants from allowing on-premises consumption of food or beverages, indoors or outside. As a result Caffé Nero temporarily closed its Newbury Street café and stopped paying rent. UMNV responded by terminating the lease and then bringing a summary process eviction action. Caffé Nero vacated the premises in late October.
In this action, UMNV seeks to recover unpaid rent plus interest and “administrative expenses” for the months that Caffé Nero continued to occupy the premises, liquidated damages for the rest of the 15-year lease term, and attorneys’ fees and expenses.
UMNV has moved for partial summary judgment as to liability for breach of contract and as to the amount of damages, interest, attorneys’ fees, and litigation costs it claims through the date that Caffé Nero left the premises. The motion does not address claimed liquidated damages thereafter.
The Court concludes UMNV’s motion is without merit, and will instead grant partial summary judgment in Caffé Nero’s favor. Under the doctrine of frustration of purpose, Caffé Nero’s obligation to pay rent was discharged while it was barred from letting customers drink or eat inside the leased premises, at least from March 24 to June 22, 2020. Therefore Caffé Nero did not breach the Lease by not paying rent for this period, UMNV’s notice of default was in error and not effective, and UMNV acted improperly in May when it terminated the lease for non-payment of rent in April. Neither the force majeure provision (which addresses impossibility but not frustration of purpose) nor the independent covenant provision bars this defense. Caffé Nero is entitled to judgment in its favor on these issues, including appropriate declaratory relief, even though it did not file a cross-motion for summary judgment.1
Though UMNV also moved for partial summary judgment as to its claim for holdover rent from the period from June 22 to October 29, 2020 (the day that Caffé Nero vacated the premises), that issue cannot be resolved on summary judgment.2
1. Factual Background. The following facts are undisputed for the purpose of deciding UMNV’s motion for partial summary judgment.
The parties entered into a lease of certain space in 205–207 Newbury Street in Boston for a fifteen-year period starting June 1, 2017. This Lease defines the leased premises as consisting of roughly 2,630 square feet3 inside the basement or “walk-down” level of the building. Caffé Nero also had the non-exclusive right to use common indoor and outdoor areas on UMNV’s property.
This Lease provides that Caffé Nero may use the leased premises “solely” for “[t]he operation of a Caffé Nero themed café under Tenant’s Trade Name and for no other purpose.” It also says that Caffé Nero was required to operate this café “in a manner consistent with other Caffé Nero locations in the Greater Boston area,” to serve food and beverages “of first-class quality,” and could only offer take-out sales “from its regular sit-down restaurant menu.” The business model that Caffé Nero followed at its other locations, and thus by contract was required to follow in this space, was to serve great coffee and food that customers could enjoy and linger over in a comfortable indoor space. Caffé Nero took almost a year and spent $1.3 million to build out the space. It opened and began operating the Newbury Street Caffé Nero in June 2018.
In late March 2020 the COVID-19 pandemic forced Caffé Nero either to shift to a take-out business model or close entirely. By order of Governor Baker, as of noon on March 24, 2020, Caffé Nero—like all other restaurants and cafés in Massachusetts—was barred from allowing any “on-premises consumption of food or beverages,” and instead could only offer food or beverages for take-out or delivery.4 The Governor extended this order several times.
Caffé Nero wrote to UMNV a few days later, saying that it could not pay rent while its business remained closed by government order and asking UMNV to waive all rent while the business was required to remain closed. Caffé Nero did not pay its rent for April 2020.
UMNV responded in writing on April 8, 2020; it declined to waive or reduce any payments due under the Lease, and notified Caffé Nero that it would be in default unless it paid the April rent within five days. Caffé Nero did not do so. On May 19, 2020, UMNV sent another letter that purported to terminate the Lease, and ordered Caffé Nero to “quit and surrender the Premises,” because Caffé Nero had allegedly defaulted by not paying rent for April; the letter also stated that Caffé Nero’s failure to pay rent for May was an additional default.
Section 11.1 of the Lease provides that Caffé Nero would be in default if it failed to pay any rent when due and did not remedy the non-payment within five days after receiving written notice of it from UMNV. This section goes on to provide that UMNV could terminate the Lease if Caffé Nero was in default. And the Lease provides that it “shall be governed by and construed in accordance with” Massachusetts law.
There is no evidence in the summary judgment record that UMNV sent any other notice giving Caffé Nero five days to remedy any later rent deficiency or purporting to terminate the Lease for any other alleged default.
In early June the Governor issued a further order allowing phased reopening of businesses that had been closed due to the pandemic.5 Under that order, Caffé Nero was able to begin offering “outdoor table service”—but still barred from letting any customers inside the leased premises—on June 8, 2020. This was the start of what the Governor called Phase 2, Step 1, of his reopening plan. Restaurants were first able to resume limited indoor table service on June 22, 2020, when the Governor moved Massachusetts to Phase 2, Step 2, of that plan.6
Caffé Nero reopened its Newbury Street location on June 8, and made sales at or from those premises during June, July, August, and September 2020. The Court infers and therefore finds that from June 8 through June 21 Caffé Nero only offered outside table service and takeout, and that it did not let any customers back inside the premises until June 22.
Once it reopened the Newbury Street operation, Caffé Nero offered to pay UMNV a higher percentage of sales in lieu of fixed rent, to cover UMNV’s out- of-pocket costs including real estate taxes, building insurance, and maintenance. UMNV rejected that offer. Caffé Nero continued to pay no rent, even though it still occupied the premises and had reopened its business.
UMNV brought a summary process action in Boston Municipal Court, seeking to evict Caffé Nero from the premises, on June 29, 20207—seven days after Caffé Nero was first allowed to resume indoor, on-premises service. It filed this action for damages on July 7, 2020.
At some point Caffé Nero concluded that UMNV was unwilling to negotiate. It therefore made plans to vacate the leased premises. After removing its equipment and furnishings, and also demolishing and removing the walk-in freezer and refrigerator as requested by UMNV, Caffé Nero returned the keys and vacated the premises on October 29, 2020.
Caffé Nero paid UMNV no rent for the period from April to October 2020.
2. Legal Background—Frustration of Purpose. Under the legal doctrine known as “frustration of purpose,” a party to a lease or other contract is excused from performing its contractual obligations “when an event neither anticipated nor caused by either party, the risk of which was not allocated by the contract, destroys the object or purpose of the contract, thus destroying the value of performance.” Chase Precast Corp. v. John J. Paonessa Co., Inc., 409 Mass. 371, 374 (1991). In other words:
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.
Id. at 375, quoting Restatement (Second) of Contracts § 265 (1981).
A classic example of frustration of purpose with respect to a tenancy occurs where the leased premises are destroyed by something beyond the tenant’s control. If that were to happen, it would still be possible for the tenant to perform its contractual obligation of paying rent. But since the purpose to be achieved by paying rent has been completely frustrated, the tenant is excused from further performance unless the lease clearly allocates the risk of that event to the tenant. See Restatement § 265, supra, comment a, illustration 3.
Frustration will similarly discharge an obligation to pay rent where a government order or regulation bars certain conduct or economic activity, it thereby substantially frustrates the principal purpose of the contract, and the non-occurrence of such an order or regulation was a basic assumption underlying the contract. See, e.g., R & F Fin. Servs., LLC v. Cudd Pressure Control, Inc., N.W.2d , 2021 ND 12, ¶¶ 17–21, 2021 WL 99733, at *4–*5 (N.D. 2021) (); Restatement § 265, supra, comment a, illustration 4 (where business rented...
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