Superior Court Sheds Light on the Application of Frustration of Purpose Doctrine During the COVID-19 Pandemic

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In the recent case of UNMV 205-207 Newbury, LLC v. Caffé Nero Americas, Inc., the Suffolk County Superior Court weighed in on the applicability of the frustration of purpose doctrine in connection with a commercial lease. In this specific case, the tenant ("Caffé Nero") operated a Caffé Nero restaurant under a 15-year lease that specified that the only purpose for which the tenant could utilize the leased premises was to operate a Caffé Nero location. On March 24, 2020, Governor Charlie Baker issued an executive order that prohibited any on-premises consumption of food or beverages at restaurants in response to the outbreak of the coronavirus pandemic. Caffé Nero thereafter wrote to its landlord and explained that it could not pay its rent for the month of April due to the mandatory closure of the cafe. The landlord responded by refusing to waive or reduce any of Caffé Nero's rent payments and, later, by proclaiming to terminate the lease and informing Caffé Nero that it must immediately quit and surrender the premises. Following further disputes and negotiations with the landlord regarding the amount that was owed for the unpaid rent, Caffé Nero vacated the premises in October 2020, having paid no rent for the months from April - October.

The landlord initiated a breach of contract suit with the Superior Court seeking to recover damages from Caffé Nero for nonpayment of rent, interest, and litigation costs. After considering the landlord's motion for summary judgment, the Court ruled in Caffé Nero's favor and held that it did not violate the terms of its lease for failing to pay rent, at a minimum, for the period from March 24, 2020 through June 22, 2020, during which time it was prohibited by law from allowing customers to eat or drink inside the leased location. The Court's ruling hinged on its analysis of the frustration of purpose doctrine, which provides that a party can be discharged from its duty to perform its contractual obligations if the principal purpose of the contract is frustrated by an unforeseen event that was not contemplated by the parties and which is not the fault of the party seeking to be excused from its obligations. In this case, the Court held that Caffé Nero was discharged from its obligation to pay rent between March and June 2020 because its primary purpose in entering into the contract with the landlord - i.e. to operate a Caffé Nero location that allowed customers to consume its products on the premises - was frustrated due to the unforeseen circumstance of the coronavirus pandemic and the associated government restrictions on Caffé Nero's ability to continue to operate as intended. As a result, the landlord's attempt to cancel the lease due to Caffé Nero's non-payment of rent was invalid. 

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