Brief Fact Summary. In this case tenant in a commercial lease failed to pay an amount due under the lease for a pro rata share of common area in a retail development, the lessor sought to terminate the lease due to the breach, which the Defendant lessee contended was a trivial breach.
Synopsis of Rule of Law. In the commercial lease situation, this Court declines to hold that any breach, no matter how trivial, can justify a forfeiture.
Points of Law - Legal Principles in this Case for Law Students.
To determine whether a breach is material, the Court must consider:(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; (b) the extent to which the injured party can be adequately compensated by damages for the part of that benefit of which he will be deprived; (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.
Facts. Beginning in 1978 lessee (Loehmann’s) became the anchor tenant in a commercial development shopping center by entering into a twenty year lease with Plaintiff Foundation Development’s predecessor in interest. The lease contained no provision for percentage rent or rent increase, and was subject to two five year renewal options, which would make the total term of the lease a potential thirty years. In addition to the rent due to lessor each month, lessee was to pay common area charges for its proportionate share of total square footage in the shopping center. The customary practice of lessee was to pay estimated common area charges at the end of the first three quarters and to receive a final statement from lessor at the end of the last quarter itemizing the actual expenditures for the year, which lessee regularly paid more than thirty days after receipt of the adjusted statement. The lessee generally paid $50,000 per year ($45,000 in rent and $5,000 in annual common area charg
es). The lease contained provisions in case of default which stated that default occurred when lessee failed to pay any annual rent or additional charges [without curing] within 10 days after receipt of notice of the failure. Under those circumstances, the lessor had the option to terminate the lease. The lease stated that time was of the essence. February 23, 1987, the agent of the lessor sent to lessee’s corporate office the year end statement of the actual expenditures for common area. The statement required payment of $3,566.44. Because the lessee believed the figure to be inaccurate, the lessee sent an inquiry to lessor’s agent. The lessor stated that the charges were higher because one of the tenants in the shopping center had left. The lessor then sent a demand letter which reinstated that time was of the essence and insisted that payment be made within ten days of receipt of the notice. The letter was received on April 17, 1987, seven days later a check was issued by lessee an
d mailed on the 25th of April. On April 28, 1987, the Plaintiff lessor filed suit seeking termination of the lease and immediate possession of the premises and payment of the common area charges. One day later lessor received lessee’s check for the common area charges. The trial court found that lessee had breached the lease, but that the breach was trivial and could not trigger forfeiture. The intermediate appellate court reversed and held that the concept of contract law that a trivial breach does not justify forfeiture had not been adapted to landlord-tenant law. The Defendant appealed.
Issue. Does the trivial breach of lessee justify forfeiture of the premises and cancellation of the lease?
Held. No. Intermediate appellate court reversed, trial court’s decision reinstated.
Although there is a statute in this jurisdiction which confers a right to lessor to terminate a commercial lease for a breach and take possession, the Court will not read the statute so broadly as to state that any breach, at any time is sufficient to confer such a right. The Court found that the legislature could not have meant to confer a right to landlord to terminate a commercial lease under any and all circumstances, no matter how trivial.
An overwhelming majority of courts have found that, without reference to a specific statute, a lease may not be forfeited for a trivial or technical breach even where, as here, the parties have agreed that any breach gives rise to forfeiture rights in the landlord.
The Court finds that the breach was very insignificant and considered the question of what would happen in case of a harsh rule of forfeiture for any breach where the check was late by mere minutes. The Court found that the results under so harsh a rule would be ridiculous.
Discussion. This opinion should be read carefully because it is well written and contains a discussion of the historical evolution of landlord-tenant law, particularly, the law in events of breach.