The SJC recently affirmed the Massachusetts Appeals Court’s  ruling that a commercial landlord whose tenant broke a 12 year lease after only two years has to wait until the lease term expires before collecting damages.

In 275 Washington Street Corp. v. Hudson River International, LLC, the landlord and tenant entered into a 12 year lease for commercial space. The lease required the tenant to occupy and use the premises for a dental office and to pay the landlord monthly rent. The lease contained an indemnity provision which provided that “[t]enant shall indemnify Landlord against all loss of rent and other payments which Landlord may incur by reason of such termination during the remainder of the term.”

After one year the tenant closed its dental office and moved out of the premises but continued making payments for an additional year. At which point the tenant notified the landlord that it would be making no further rental payments and that it would not resume occupation of the premises.  The landlord subsequently re-entered the premises and signed a new ten year lease for the premises with a replacement tenant at a lower rent than was agreed on under the original lease.

In 2008 the landlord filed suit against the tenant and sought to recover all damages arising from the breach. The landlord subsequently prevailed on a motion for summary judgment as to liability. Prior to trial the parties stipulated to a judgment but the defendants reserved their right to appeal.

On appeal, the Appeals Court held that the bright line rule remains that a landlord must wait to collect damages until the end of the original lease term. While the Appeals Court affirmed the finding of liability in favor of the landlord, it vacated the judgment assessing damages and remanded to the trial court to calculate the damages as of the time the landlord recovered possession of the premises.

On subsequent appeal to the Supreme Judicial Court, the SJC held that it is well settled that when a landlord terminates a lease following the default of a tenant, the tenant is obligated to pay the rent due prior to the termination but has no duty to pay any rent that accrues after the termination unless the lease expressly provides.

The landlord’s argument regarding the indemnification clause in the lease also failed because the SJC said an indemnification clause only reimburses a landlord for actual losses and the precise amount of those losses would not be known until the end of the period specified in the lease.  The landlord argued the damages could be calculated because it had obtained a replacement tenant.

The SJC ruling underscores the importance of incorporating a clause in a commercial lease which explicitly describes the landlord’s remedies in the event of a default.  The decision makes clear that the law will not change to accommodate a landlord that failed to include a rent acceleration clause in its lease. To protect against a default landlords should insist on a rent acceleration clause to be part of the remedy provided for in the lease.  Otherwise, as in 275 Washington St, the landlord will have to wait until the end of the lease to collect damages. 

If you manage a business that deals with Massachusetts residents or property, you need to know a few things about the new medical marijuana law and coming regulations.

In November, Massachusetts voters approved a ballot question which allows patients with qualifying medical conditions to obtain and use medical marijuana. Seventeen other states currently allow medical marijuana with varying degrees of regulation. By May 1, 2013 the Massachusetts Department of Public Health will issue regulations concerning applications for non-profit medical marijuana treatment centers as well as details on the rules that will govern such dispensaries, their employees and qualifying patients.

Some businesses may think the new medical marijuana law will not impact them, but they are mistaken. There will be at least two areas where the medical marijuana law will have an immediate impact: employment law and landlord/tenant law.

In terms of employment law, employers will need to address how the law impacts their controlled substance policies including, but not limited to, drug testing. The law contains an anti-discrimination clause that prohibits any qualifying patient from being penalized or denied any right or privilege for using medical marijuana. Employers should review their employment handbooks to ensure their employment policies and procedures are in accord with this new law and that their controlled substance policies will not be in violation.

Another business segment that will be immediately affected will be landlords and their tenants. Commercial and residential Landlords, property managers and leasing agents will be faced with how to address prospective dispensaries as tenants as well as marijuana use by tenants who are qualified patients. The anti-discrimination clause in the new law is broad and encompasses any denial of any right or privilege based on medical marijuana use. In addition to preventing discrimination based on marijuana use, the law also will allow certain persons a hardship cultivation license which will allow a person to cultivate and store a limited number of marijuana plants. Landlords need to be prepared to address these concerns and review their leases and procedures to confirm they are in accord with the new law.

There will be many novel legal issues associated with the medical marijuana laws in Massachusetts and other states. Businesses will be well advised to review the law with qualified attorneys to develop a strategy to address these many issues.