COVID Shutdown was NOT “Frustration of Purposes” in a Commercial Lease
The COVID shutdown was devastating for many businesses, especially those that relied on foot traffic or provided up-close and personal services to their customers, such as the commercial tenant in this recent Massachusetts Appeals Court case that operated a spa that provided European-style waxing (doesn’t get much more up-close and personal than that…).
The tenant had been operating the spa since September 2016 and had leased its space from the plaintiff since that time. The lease was for a ten-year term, but only 3-1/2 years into the lease term, the global COVID-19 pandemic struck. Like many businesses, the spa closed temporarily in March 2020, reopening on a limited basis in July 2020 when the Commonwealth’s emergency orders were amended. However, between March 2020 and March 2021, the tenant made only two lease payments, was subsequently evicted, and the plaintiff was awarded a judgment of over $86,000.00.
As a defense, the tenant claimed that the pandemic shutdown had frustrated the purpose of the contract and, as a result, it should effectively be excused from performance under the lease and not be subjected to damages. The Superior Court rejected this theory and on the tenant’s appeal, the Appeals Court affirmed.
The Appeals Court stated:
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).
The Court based its decision on several facts: (1) The closure was temporary, (2) the closure occurred well into the lease term (3-1/2 years into a 10-year term), and (3) the tenant was able to resume operations soon after the closure took place. Although the interruption certainly interfered with the tenant’s business, the Court did not find it so pervasive that the purpose of the contract was so completely frustrated that enforcing the lease made “little sense” as is required under the high legal standard for frustration of purpose, and citing to other jurisdictions which had also found that the temporary shutdown did not completely frustrate the purpose of a long-term lease, especially one that was already well into its term.
