Inland Commercial Real Estate Services, LLC v. ASA EWC, LLC ( 2023 )

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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
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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.
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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
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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).
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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.
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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
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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
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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.