Caffé Nero Decision: Will It Affect Landlords?

By Peter Vickery, Esq., Legislative Affairs Counsel

In a recent ruling, Superior Court Judge Kenneth Salinger held that a commercial tenant did not have to pay rent because the governor’s shutdown order frustrated the purpose of the lease. The decision has left some landlords wondering about the implications for the residential market.

Caffé Nero on Newbury Street in Boston, now closed after the pandemic forced it to shut its doors
Image Source: Google Maps

Frustration of Purpose: If the café can’t operate, it doesn’t need to pay rent.

Readers will recall that on March 23, 2020, Governor Charlie Baker issued Order No. 13, prohibiting restaurants from letting customers eat or drink indoors and ordering the temporary closure of “non-essential” businesses.

The closure turned out to be permanent for many Massachusetts businesses, including Caffé Nero on Boston’s Newbury Street, which had leased space from a company called UMNV 205-207 Newbury, LLC. The tenant stopped paying rent in April 2020. The landlord issued a notice of breach and terminated the lease on May 19, 2020, and on June 29, 2020, (a week after Caffé Nero reopened), the landlord commenced summary process proceedings. In October, while the case was pending, Caffé Nero’s operators vacated the premises and returned the keys.

The one and only purpose of the lease was the operation of a café in which customers could sit down indoors to eat and drink. Order No. 13 put an end to that and with it, said Judge Salinger, the tenant’s obligation to pay rent.

Under the well-established doctrine of frustration of purpose, a party to a contract does not have to perform its obligations (here, to pay rent) if some unanticipated event destroys the value of the contract.

The name of the case is UMNV 205-207 Newbury, LLC v. Caffé Nero Americas Inc., and it is available online via Attorney Richard Vetstein’s Massachusetts Real Estate Law Blog. Vetstein points out that “the ruling could give leverage to struggling restaurants dealing with lost business and unpaid rent bills.”

Can this ruling help or hurt MassLandlords members?

Does this case have implications for housing providers? No. Judge Salinger held that because the governor’s shut-down order prevented the tenant from operating an indoor café (the sole purpose of the commercial lease), the tenant did not have to pay rent. The situation with residential leases is the exact opposite, so the doctrine of frustration does not apply.

Nothing that the governor (or the state legislature) has done has prevented the activity that is the essential purpose of any residential lease, namely, providing a dwelling. On the contrary, rental accommodation is something that both the Commonwealth and the federal government deemed so necessary that they enacted partial eviction moratoriums. Under the Massachusetts moratorium (Chapter 65), housing providers were not allowed to start summary process proceedings except when the tenant was posing a threat to health and safety.

There are plenty of bills, statutes, regulations, executive orders, agency guidelines, local bylaws and judicial decisions for landlords to worry about. This is not one of them.