Umnv 205–207 Newbury, LLC v. Caffé Nero Americas Inc.
N/A (2021)
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Rule of Law:
The doctrine of frustration of purpose discharges a party's contractual obligations when an unforeseen event, not caused by either party and not allocated by the contract, substantially destroys the principal purpose or value of the contract, particularly when the contract specifies a sole permitted use for the leased premises.
Facts:
- UMNV 205–207 Newbury, LLC (Landlord) and Caffé Nero Americas, Inc. (Tenant) entered into a 15-year lease for retail space at 205–207 Newbury Street in Boston, effective June 1, 2017.
- The Lease explicitly provided that Caffé Nero could use the premises “solely” for “[t]he operation of a Caffé Nero themed café” requiring a sit-down restaurant model, and for no other purpose.
- Caffé Nero spent $1.3 million to build out the space and began operating its Newbury Street café in June 2018.
- In late March 2020, Massachusetts Governor Baker issued orders prohibiting all restaurants and cafés from allowing on-premises consumption of food or beverages, limiting them to take-out or delivery only due to the COVID-19 pandemic.
- Caffé Nero informed UMNV that it could not pay rent while its business was closed by government order and asked for a rent waiver, subsequently failing to pay rent for April 2020.
- UMNV declined to waive or reduce rent and, on April 8, 2020, issued a default notice for non-payment of April rent, followed by a purported lease termination on May 19, 2020, citing non-payment for April and May.
- On June 8, 2020, Governor Baker's order allowed outdoor table service, and on June 22, 2020, limited indoor table service resumed; Caffé Nero reopened its location accordingly.
- Caffé Nero continued to occupy the premises and paid no rent from April to October 2020, eventually vacating the premises on October 29, 2020.
Procedural Posture:
- UMNV sent a default notice to Caffé Nero on April 8, 2020, for non-payment of April rent.
- UMNV sent a letter on May 19, 2020, purporting to terminate the Lease for non-payment of April and May rent and demanding Caffé Nero vacate the premises.
- UMNV brought a summary process eviction action against Caffé Nero in Boston Municipal Court on June 29, 2020.
- UMNV filed this action for damages against Caffé Nero in Massachusetts Superior Court on July 7, 2020.
- UMNV moved for partial summary judgment in the Superior Court action seeking unpaid rent, interest, administrative expenses, liquidated damages, and attorneys' fees up to the date Caffé Nero vacated the premises.
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Issue:
Does the doctrine of frustration of purpose discharge a commercial tenant's obligation to pay rent under a lease that restricts use to a single purpose when a government order, issued due to an unforeseen global pandemic, temporarily bars that specific use?
Opinions:
Majority - Kenneth W. Salinger
Yes, the doctrine of frustration of purpose discharges a commercial tenant's obligation to pay rent under a lease for a single purpose when an unforeseen government order temporarily bars that specific use. The court found all four elements of the frustration of purpose doctrine were met for the period from March 24 to June 22, 2020. First, the main purpose of the lease was undisputed: operating a Caffé Nero themed café with sit-down service, as explicitly stated by the 'solely for' clause. Second, this purpose was completely destroyed by the Governor's orders prohibiting indoor dining during that period. Third, the non-occurrence of a global viral pandemic leading to a government-mandated shutdown of the entire restaurant industry was a basic assumption of the contract, and not something the parties contemplated. Fourth, nothing in the lease allocated the risk of such an unforeseen event to Caffé Nero. The court rejected UMNV's arguments that the force majeure clause or the independent covenants provision barred the defense. The force majeure clause explicitly excluded the 'payment of money' from excused performance, addressing impossibility of performance rather than frustration of purpose where performance is possible but without value. The independent covenants provision, stating rent was payable 'in all events,' was designed to negate the common law rule of mutually dependent covenants regarding a landlord's breach, not to cover situations where the contract's fundamental purpose is destroyed by external events. Interpreting these clauses to bar frustration would render the lease's narrow use restriction nonsensical from a business perspective. Therefore, Caffé Nero was not in default, and UMNV's termination notice was invalid.
Analysis:
This case provides important guidance on the application of the frustration of purpose doctrine in the context of unforeseen, widespread government restrictions, such as those during the COVID-19 pandemic. It clarifies that boilerplate force majeure clauses, which often exempt monetary payments, and 'independent covenant' provisions may not automatically preclude a frustration defense where the lease defines a sole, narrow purpose for the property that becomes impossible or illegal to fulfill. The ruling underscores that courts will interpret contractual provisions, particularly use restrictions, in light of the parties' underlying business intent, suggesting a flexible approach to unforeseen events that fundamentally undermine the commercial logic of a contract. This precedent can influence future interpretations of commercial leases, especially those with highly specific use clauses, during times of unexpected external disruption.
