We last wrote about Varano v. PDJM in our November 2022 issue of Law of the Land. In the first iteration of Varano, the Superior Court held that a commercial landlord could not evict a tenant based non-material breaches of its lease. There, the tenant's (Verano's) breaches consisted of submitting rental payments 10 days late and failing to remedy routine maintenance issues at the premises. Recently, the Massachusetts Appeals Court affirmed that Superior Court decision in Varano v. PDJM Land Tr., LLC, 103 Mass. App. Ct. 1127 (2024).
After losing in the Superior Court, landlord PDJM appealed, arguing that the Superior Court erred in finding Varano's breaches non-material. The Appeals Court rejected PDJM's arguments wholesale. With respect to the untimely rent payments, the Appeals Court emphasized the “materiality” factors set forth in DiBella v. Fiumara, 63 Mass. App. Ct. 640, 646-647 (2005). Those factors include: (1) the extent to which the non-breaching party has been or will be deprived of the benefit which it reasonably expected; (2) the extent to which the non-breaching party can be adequately compensated for the part of that benefit which it has been and/or will be deprived; (3) the extent to which the breaching/non-performing party will suffer a forfeiture; (4) the likelihood that the breaching/non-performing party will cure his failure; and (5) the extent to which the behavior of the breaching/non-performing party comports with standards of good faith and fair dealing.
Applying these factors, the Court reasoned that the late rent payments were not material breaches. The “core bargain” between the PDJM and Varano was for Varano to occupy commercial space in exchange for a stipulated monthly rent over a period of ten years. Varano paid that rent, and those rental payments where never more than a few weeks late (and typically only days late). There was no evidence that these late payments hampered PDJM's ability to make its mortgage payments. The remaining four factors also cut in favor of Varano. The lease already included a late fee provision to compensate PDJM for any harm resulting from late rental payments. It was also clear that termination of the lease would likely force Varano to relocate his restaurant outside of the North End, possible costing him his business.
Finally, the Court quickly disposed of PDJM's argument that Varano's failure to address maintenance issues and respond to a letter from PDJM's insurance agent amounted to material breaches. The Appeals Court relied on the Superior Court's findings that the maintenance issues cited were typical of the restaurant industry and were rectified promptly. Further, PDJM did not demonstrate that it was harmed in any way (e.g., no loss of insurance, no code infractions, no failed inspections, no forced suspension or closure of operations, etc.).
Varano should stand as a reminder to commercial landlords that a tenant's breaches must actually change the “core bargain” of the lease or inflict demonstrable harm upon the landlord in order to justify a lease termination or eviction.
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