SJC Decision Bars Counterclaims in Commercial Evictions

Published on: August 22, 2003

Most commercial landlords and tenants are aware that Massachusetts landlord-tenant laws are far more solicitous of residential tenants. But the Supreme Judicial Court (SJC) made the legal landscape, if not entirely even, then certainly a bit less rugged for commercial tenants when it ruled last year that the principle of “mutually dependent covenants,” which provides legal ammunition for residential tenants, applies to commercial tenants as well. [SJC Decision Gives Commercial Tenants New Rights….]

That decision, in Wesson v. Leone Enterprises, made it clear that commercial tenants have the right to terminate a lease if the landlord fails to uphold commitments deemed essential to the tenancy. Although lease termination was the only remedy the SJC identified, some commercial tenants inferred from the court’s ruling that, like residential tenants, commercial tenants had the right to withhold rent when the landlord breached a lease provision, and to raise the landlord’s breach as a defense in a summary process eviction proceeding for nonpayment.

Both before and after Wesson, the lower courts ruled inconsistently on this point, with some allowing the counterclaim and others rejecting it as barred by the summary process statute. The SJC still has not ruled definitively on rent withholding, but it has now resolved the counterclaim question. In a recent decision (Fafard v. Lincoln Pharmacy of Milford, Inc.), the court held that the summary process statute clearly prohibits counterclaims in commercial evictions, and Wesson, the court said, did nothing to alter that long-established rule.

A Long History

The origins of the suit go back nearly two decades, when tenant Richard Aronovitz signed a one-year lease for a commercial space from which to operate his pharmacy. The lease included a one-year option to purchase the property from the landlord (Fafard), in connection with which Aronovitz paid a deposit and contributed some of the financing required for property repairs. Within the deadline specified in the lease, he submitted an offer to purchase the building, which Fafard rejected. When his lease expired, Aronovitz continued renting the space as a tenant-at-will.

That arrangement was still in place nine years later, in April 1990, when Fafard sold the property to the trustees of the Lyman Realty Trust. In its subsequent suit against Aronovitz, Lyman claimed that he had made no rental payments from the time the trust acquired the building until Aronovitz finally left approximately two years later. When Lyman sought to evict him for nonpayment of rent, Aronovitz filed a counterclaim contending that the landlord owed him money for the improvements he had financed, the property taxes he had paid, and other expenditures related to his option to purchase the property, which Aronovitz contended, Fafard had rejected improperly. The rejection of his offer, Aronovitz said, constituted a breach of his lease, justifying the withholding of his rent.

Counterclaim Allowed and Rejected

A district court judge ordered Aronovitz to pay back rent from April 1990 through October 1992, but reduced the amount owed by some of the expenses the tenant had claimed, bringing the total down to $8,100. Lyman appealed to the Superior Court, which ruled that Aronovitz’s counterclaim should not have been allowed. Accordingly, the judge ordered the tenant to pay the full amount of the back rent, $82,741.41, with no deductions. Aronovitz sought appellate review and the SJC took the case directly on its own motion.

Aronovitz argued that the Superior Court erred in barring his counterclaim, because the summary process statute (General Laws c. 239) does not specifically prohibit counterclaims in commercial summary process proceedings. But the SJC ruled that, in fact, this was the Legislature’s clear intent.

The statute says tenants have the right to bring a counterclaim in certain actions to evict for nonpayment of rent involving a property “rented or leased for dwelling purposes.” Writing for the court, Justice William Ireland said that wording clearly restricts tenant counterclaims to residential summary process actions only. “Had the Legislature intended…to allow tenant counterclaims in both residential and commercial summary process proceedings,” Justice Ireland said, “it could have included words to that effect, or omitted the words ‘for dwelling purposes.’”

A Disingenuous Argument

The SJC was not at all persuaded by Aronovitz’s argument that Fafard’s rejection of his offer to purchase the building constituted a breach of the original lease that justified rent withholding under the “mutually dependent covenant” principle established in Wesson. That argument is “particularly disingenuous,” the court said, “given that the tenant vacated the premises eight years after the option to purchase was rejected and only after [being] served with a notice to quit, and after the landlord had started a summary process action.”

The court agreed that it would be more efficient to address related issues – tenant allegations of a breach and the landlord’s summary process motion – in a single proceeding, but “the statutory scheme does not allow counterclaims in a commercial summary process action,” the court said, “and we are not at liberty to amend the statute.”

While there is no right to file a counterclaim, the court added, commercial tenants can bring a separate action alleging the landlord’s breach and ask the court to consolidate that action with the landlord’s summary process proceeding — a request the judge has the discretion to allow – or not. It is significant that the court did not say judges are required to consolidate or even that the SJC would encourage judges to do so. The court said this is entirely within the judge’s discretion. So while commercial tenants can hope a judge will grant a consolidation request, they can’t count on that outcome.

A High Stakes Gamble

Wesson left open the question of whether rent withholding would become a remedy for commercial tenants and Fafard does not answer that question directly. Although the decision does not preclude withholding, it clearly makes withholding a high-risk strategy, because a commercial tenant who bets on consolidation and loses will likely lose everything.

Remember that summary process is designed to be expeditious; there really isn’t much to decide. If the court finds that you have not paid the rent (which, if you have withheld rent, you will acknowledge), you will be evicted. You may win a decision in your separate civil action two years later saying the landlord owes you money, but that won’t help much if you’ve lost your location and possibly the business on which it depended.

Instead of taking a chance on withholding and hoping for a consolidation ruling they may not get, commercial tenants would be better advised either to file a separate preemptory suit against the landlord claiming breach of the lease, or to seek a court order authorizing the withholding of rent pending completion of essential repairs. Commercial landlords, on the other hand, should be very aggressive in dealing with rent withholding actions by their tenants, given that the courts will not allow counterclaims as a defense to summary process actions.

The structure the SJC has devised really sets up a race to the courthouse. If you’re a commercial tenant, a first strike policy works best; if you’re a commercial landlord, a lower docket number may be the difference between a quick, uncontested legal assault and a more protracted courtroom battle.