Laying Down The Law – Defining Material Breach Of A Commercial Lease

Commercial leases contain countless provisions, including those pertaining to a material breach, and often are in effect for years. As a result, one or both parties may breach or violate one or more of those lease provisions at some point or another during the lease term. Of course, breaching a lease or any contract can have adverse consequences. However, not every commercial real estate lease breach is material or rises to the level that an eviction or other type of legal action is necessary.

Defining an Immaterial or Trivial Breach of Lease

Any deviation from the terms of a lease is considered a breach of the lease. An immaterial breach of lease occurs when only a slight deviation from the lease terms has occurred, but the breaching party still has performed.

While an immaterial breach cannot lead to a termination of the lease, a lockout, or an eviction, it nonetheless may lead to damages for nonperformance. The breaching party would be liable for damages to the extent that the breach has injured the non-breaching party.

Defining a Material Breach of Lease

The Arizona Supreme Court has made it clear that not every breach of a lease is grounds to terminate that lease or take other legal action. See Foundation Dev. Corp. v. Loehmann’s, 163 Ariz. 438 (1990). In that case, the Court held that “a lease may not be forfeited for a trivial or technical breach even where the parties have specifically agreed that “any breach” gives rise to the right of termination.” Rather, a material breach must involve substantial nonperformance of a party’s duties under the lease.

The Court also adopted the standards outlined in the Restatement (Second) of Contracts § 241 (1981) for determining whether a breach is trivial or immaterial in a landlord-tenant context, which include the following:

• the extent to which the injured party will be deprived of the benefit which he reasonably expected;
• 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;
• the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
• 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; and
• the extent to which the party’s behavior failing to perform or to offer to perform comports with standards of good faith and fair dealing.

The Court also pointed out that even if the breach involves a material provision of the lease, the breach itself may be immaterial or trivial enough that it does not constitute a material breach.

Furthermore, a material breach requires the injured party to be deprived of a reasonably expected benefit from the lease. The injured party also must be able to calculate appropriate damage because of that deprivation of the reasonably expected benefit. Other considerations relevant to whether a breach of a commercial lease is material include the likelihood that a party failing to perform will be able to cure the failure promptly or if the failure violates reasonable standards of good faith and fair dealings.

Our team of real estate attorneys at Provident Law® have over 200 years of combined real estate law experience and are well equipped to resolve any real estate title dispute. If you or someone you know have an issue with their real estate title, contact our office today at (480) 388-3343 or online and schedule an appointment to speak with one of our real estate specialists.

Christopher J. Charles is the Founder and Managing Partner of Provident Law ®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS ® (the “AAR”). In 2017, Mr. Charles obtained one of the Top Ten Civil Verdicts for his client in a real estate dispute. Mr. Charles holds the AV ® Preeminent Rating by the Martindale-Hubbell Peer Review Ratings system which connotes the highest possible rating in both legal ability and ethical standards. He serves as an Arbitrator and Mediator for the AAR regarding real estate disputes; and he served on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions. Christopher regularly teaches continuing education classes at the Arizona School of Real Estate and Business, and he can be reached at Chris@ProvidentLawyers.com or at 480-388-3343.

With Christopher J. Charles, Esq.