By general consensus, the Supreme Judicial Court’s decision in Wesson v. Leone Enterprises Inc. (2002) was one of the most significant developments in Massachusetts commercial lease law in recent years.

The court in Wesson – overturning hundreds of years of precedent – rejected the doctrine treating the obligations of landlord and tenant in a commercial lease as “independent covenants” in favor of the more “modern” doctrine of “dependent covenants.” This change has potentially far-reaching ramifications, many of which have yet to be addressed by decisional case law.

Under the independent covenants doctrine, a tenant could not terminate its lease and was required to continue paying rent, no matter what defaults the landlord might have committed (for instance, serious breaches by landlord of obligations to repair and maintain the property).

In most cases, the tenant’s only option was to stay put and sue for damages and/or for specific performance. The only exception to the strict application of this rule arose when a landlord’s actions constituted a “constructive eviction,” in which case the tenant could terminate the lease and move out (or, for the more cautious, sue for declaratory judgment and then terminate and move out). But tenants had to keep paying rent until it terminated.

Under the doctrine of “dependent covenants,” the tenant has more, potentially many more, options. The SJC adopted the formulation of “dependent covenants” in Wesson from section 7.1 of the Restatement, (Second) of Property (Landlord and Tenant) (1977).

The court quoted the treatise as follows: “Except to the extent that the parties to a lease validly agree to the contrary, if the landlord fails to perform a valid promise contained in the lease to do, or to refrain from doing, something, and as a consequence thereof, the tenant is deprived of a significant inducement to the making of the lease, and if the landlord does not perform his promise within a reasonable period of time after being requested to do so, tenant may (1) terminate the lease.”

The balance of Restatement Section 7.1, not quoted or otherwise explicitly adopted by the court, provides to the tenant a range of other remedies (beyond simply terminating) not previously available to the commercial tenant in Massachusetts, including abatement of rent, use of rent to perform the landlord’s defaulted obligations and payment of the rent into escrow until the landlord performs its obligations.

In Wesson, the tenant had already terminated the lease and moved out by the time the case got to court, so the absence of reference to these other remedies should not necessarily be construed as suggesting reluctance by the SJC to bring the balance of Restatement Section 7.1 into Massachusetts law when the appropriate cases present themselves.

Many Open Questions Remain

The Wesson case opens whole new areas for exploration in Massachusetts commercial lease law that are largely terra incognita.

Some outstanding questions are: What landlord promises might constitute “significant inducements”? What remedies will ultimately be available? To what extent can landlord and tenant agree in advance what the remedies will be, or indeed, whether the dependent covenants doctrine is applicable at all? (For a more extensive treatment of the Wesson case and the issues which it raises, see the upcoming version of Section 6.1 of the Massachusetts Continuing Legal Education treatise “Lease Drafting in Massachusetts,” which has been extensively revised by the author of this article in response to the Wesson case.) Important real-world consequences will flow from these cases, both in the drafting of commercial leases and in counseling landlords and tenants when disputes arise. It behooves those of us who have an interest in commercial leasing to keep a close eye on Wesson as it develops. My hope is to be able to report back periodically on further developments.

Post-Wesson Decisions

In the two-plus years since Wesson came down, the reported Massachusetts cases have only just begun to fill in some of the open questions. The only subsequent SJC case in which Wesson has made an appearance to date is Fafard v. Lincoln Pharmacy of Milford Inc. (2003).

In Fafard, the court reaffirmed the proposition that General Law Chapter 239, section 8A does not allow counterclaims in non-residential summary process proceedings (the correct procedure being to start a separate action and move to consolidate). In so doing, the court pointed out that “[t]he tenant did not terminate the lease or withhold rent [emphasis added] in response to any failure by landlord, after notice, to perform a promise significant to the lease.”

At the risk of attaching too much significance to a justifiably cursory comment, the court does seem to be suggesting that, in addition to termination, the withholding of rent (as permitted under Restatement section 7.1) would be a permissible course of action if the tenant plays by the rules.

The Massachusetts Appeals Court also addressed Wesson is discussed in Shawmut-Canton LLC v. Great Spring Waters of America Inc. (Massachusetts Appeals Court, 2004).

In Shawmut-Canton LLC, the tenant entered into a lease for an office and garage facility from which its delivery trucks were to operate. The lease required that prior to commencement the landlord would create within the garage a repair shop for the tenant’s trucks. After the lease was executed, it became apparent that the use of a portion of the premises as a repair shop was not permitted under the applicable zoning. The tenant was informed by the landlord’s lawyer that efforts to obtain zoning relief would be futile.

The tenant sent a notice purporting to cancel the lease.

The landlord treated this as a default, terminated, brought an action in the Superior Court to recover under the liquidated damages provision of the lease and obtained the summary judgment that was the subject of this appeal.

While the case was being heard in the Superior Court, Wesson was issued, and the tenant then sought to amend its answer to add a “dependent covenants” defense, based on the landlord’s failure to create the promised repair shop.

The judge in the Superior Court refused to permit this amendment on the basis that the lease called for written notice of default to landlord and a 30-day opportunity to cure. Since this hadn’t been done prior to the tenant’s attempted cancellation, the cancellation was void, regardless of whether Wesson might provide to the tenant a substantive right to terminate.

Noting that compliance with a notice provision is not required if cure is impossible and that the issue of whether there was a possibility that the landlord could have gotten zoning relief is a question of fact, the Appeals Court reversed the summary judgment, allowed the tenant’s amendment to add the Wesson defense and remanded the case to the Superior Court.

One question left open is whether the Appeals Court’s comments regarding the notice requirements of the lease apply with equal force to the “request” as well as the reasonable time to cure, both of which appear to be required as a matter of law under Wesson and Restatement section 7.1.

It would seem to be a futile exercise to allow the dependent-covenants defense in because notice under the lease was not required and then throw it out again on the basis that notice was required under Wesson, but that remains to be seen.