Tenant’s Corporate Parent Insulated from Lease Default Claim; But Liable for Use and Occupancy

Last Fall, the Massachusetts Appeals Court held in OMV Associates, L.P. v Clearway Acquisition, Inc., 82 Mass. App. Ct. 561 (2012), that a lessee’s corporate parent could not be reached under traditional veil-piercing principles to pay the debt of a subsidiary that breached a commercial lease.

In affirming the Superior Court’s allowance of the corporate parent’s Motion for Judgment Notwithstanding the Verdict, thereby insulating the parent from liability for its subsidiary’s unpaid rent, the Appeals Court relied heavily on the fact that the relationship between the landlord and tenant “was established by the written lease agreements.”

Although the Court noted that employees of the various entities involved, and perhaps the public itself, may have been confused by intermingling of the resources of the tenant and its parent, “the evidence did not support a finding of confused intermingling in relation to [the landlord].” The decision suggests that commercial landlords seeking to hold a tenant’s parent company responsible for rent may have a tough row to hoe, especially where, as in OMV: (i) the corporate relationship between the tenant and its relative was not established until after the lease was signed, and (ii) the parent company did not guarantee the lease obligations. The Appeals Court emphasized that it is a “rare situation” in which a plaintiff may pierce the corporate veil in a “contract-based relationship, where the parties are plainly identified and their rights and obligations clearly defined. . . .” See OMV, 82 Mass. App. Ct. at 567.

Two other aspects of the OMV decision may resonate with commercial landlords and tenants.

First, the Appeals Court held that the re-letting of the premises after a purported surrender by the tenant did not constitute an acceptance of that surrender where the lease expressly authorized re-letting upon tenant’s default. See id. at 572-73.

Second, the Appeals Court upheld the Superior Court’s judgment against the tenant’s parent company for use and occupancy payments for a short period of time after the tenant ceased to pay rent, during which the parent company’s employees worked at the premises regularly. The use and occupancy judgment was supported by a finding that an implied agreement for use and occupancy (but not to undertake lease obligations) existed between the landlord and the corporate parent, evidenced by issuance of building identification cards to the parent company’s employees.

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