LEGAL NEWSLINE

MONTPELIER, Vermont (Legal Newsline) - The Vermont Supreme Court found that because a landlord's notice of default was defective, the landlord was not entitled to rent accrued after the wrongful eviction.

Justice John Dooley wrote the Jan. 25 opinion for the unanimous five-member Court.

"Mad Partners, LLC and Chris Pierson (collectively, lessor) leased a restaurant and residential condominium to defendants Fifth Son Corporation and J. Michael Henzel (collectively, lessee) for a two-year period beginning January 1, 2009.

"Until March 2010, lessee operated a restaurant called "Miguel's at Sugarbush" in the leased commercial building, and stayed in the condominium irregularly.

"Lessor and lessee signed two separate leases, one for the restaurant and one for the condominium, but each lease provided that default on either one would allow lessor to exercise default rights under both. The leases differed, however, in how lessor was to give notice if he wished to exercise such rights.

"Article XI of the restaurant lease provided that in the case of an "Event of Default," which included nonpayment of rent for a specified period:

"Lessor ... may give written notice to Lessee specifying the occurrence giving rise to such Event of Default ... and stating that this Agreement and terms hereby demised shall expire and terminate on the date specified in such notice, which shall be at least twenty (20) days after the giving of such notice . ...

"It went on to describe how lessee could cure the default before that specified date.

"Article 5 of the condominium lease, by contrast, provided:

"If the Lessee shall neglect or fail to perform any of its covenants, and in particular if any monthly installment of rent be overdue and unpaid, the Lessor may, immediately or at any time thereafter, give notice pursuant to State statutes for Lessee to vacate the premises . ...

Lessor, Mad Partners and Pierson, fell behind on rent and as of March 5, 2010, was in default on the lease of both the restaurant and the condominium. Lessee, Fifth Son and Henzel, mailed what was characterized as a notice of default that date.

For unknown reasons, the Postal Service's three attempts at delivery of the notice were not received by the lessee and the Postal Service eventually stamped the envelope "unclaimed." At some point after, according to the opinion, lessee called lessor to discuss and lessee learned that he was about to be evicted from both properties.

"On March 28, 2010 - the same day that he emailed the notice - lessor locked lessee out of both premises. After that date, he did not allow lessee to access the properties to retrieve any items.

"This action began when the Vermont Small Business Development Corporation (VSBDC) filed suit against both lessor and lessee based on a default on a loan to lessee. Lessor then cross-claimed against lessee for rent, damages, utility costs, interest, and attorney's fees. Lessee, in turn, cross-claimed against lessor for lost profits due to a wrongful eviction and conversion of personal property left on the premises.

"The suits by VSBDC settled as to both defendants, but the case between lessor and lessee continued.

After the trial court judge granted partial summary judgment to Leesee, holding that Lessor, Mad Partners, had wrongfully evicted Lessee from the premises due to the form and delivery of the notice of eviction, the rest of the claims were tried before a jury.

The jury awarded Lessor past rent and utility costs for both the restaurant and the condo but did not award damages for the nonpayment of post-eviction rent or utilities for either property. It also did not award damages to Lessee for the wrongful eviction, for Lessor's failure to return the security deposit, or for punitive damages regarding either property.

Lessor appealed the summary judgment order that found the eviction was wrongful and the jury finding. and the post-trial motion arguing against the jury finding, that said that the Lessee was not liable for post-eviction rent or for liquidated damages under the restaurant lease.

"Our law is clear on the necessity of strict compliance with terms in a lease in order to effectuate an eviction," Dooley wrote. "In Vermont, when a lease expresses an agreement with regard to notice of termination, the time, mode and manner of such notice must conform to the agreement.

"Clearly, it did not. The notice of default was defective in two ways. First, although the terms of the restaurant lease clearly require lessor to 'specify the occurrence giving rise to [the] Event of Default,' it failed to do so.

"Second, although the restaurant lease provides that the notice must 'state that this Agreement and terms hereby demised shall expire and terminate on the date specified in such notice,' Lessor did not specify any such date.

"Under the terms of the lease, proper termination requires a valid notice to terminate. Because the notice of termination of the restaurant lease was defective, we affirm the trial court's finding on summary judgment that Lessor's eviction of Lessee from the restaurant was wrongful."

Dooley then moved on to the issues of post-eviction rents or liquidated damages.

"We can find no precedent that would allow collection of future rent based on a wrongful eviction because of language in a lease, particularly language allowing recovery of future rent as liquidated damages. There are, however, cases to the contrary.

"As the trial judge observed, allowing liquidated damages when a landlord unlawfully terminates a tenancy 'would give Lessor the unilateral right to terminate at any time for any reason regardless of any default and impose a large penalty on Lessee.'

"Such a result would be unjust in any case; it is particularly unjust where the lessor terminates the tenancy by denying access to the business property and thereby prevents the lessee from earning income to pay the rent.

"[W]here lessor did not properly terminate the tenancy, he is entitled neither to rent for the premises after the wrongful eviction nor to a large liquidated damages award based upon lessee's default in paying past rent.

"We conclude that there was not a 'repossession of the Leased Premises by reason of an Event of Default' as required by Article XIII. Accordingly, we uphold the trial court decision that lessor cannot collect post-eviction rent, whether labeled as such or as liquidated damages."

The Court affirmed the decisions of Judge Michael S. Kupersmith of the Superior Court, Washington Unit, Civil Division, on the partial summary judgment order and on the post-trial motion finding that lessee was not liable for post-eviction rent or liquidated damages.