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Case Notes
It's Not the Money Spent, It's the Level of Conformance
Mississippi's Supreme Court has upheld the decision of a lower court proclaiming a lessor's lease cancellation appropriate, as substantial compliance with the lease terms was missing in spite of the large sums of money the lessee invested in the properties, and the lessee's offered no evidence on appeal that would indicate the lower court decision was erroneous. Watkins Dev. v. Jackson Redevelopment Auth., 2019 Miss. LEXIS 356 (Miss. 10/3/19).
The Jackson Redevelopment Authority (JRA) leased several parcels along Farish Street in Jackson, MS, to a predecessor lessee that failed to perform on the terms of the lease. JRA then permitted a new tenant, the Farish Street Group (FSG), to take over the long-term lease. The new parties then renegotiated the lease, which required FSG to renovate the properties in what was to be an "entertainment district" and lease them to retail tenants within a prescribed period of time. Several years passed, however, and the improvements promised were largely unfinished. In addition, none of the properties had yet been leased to retail tenants. JRA therefore terminated the lease, leading to a dispute between the parties in The Hinds County Chancery Court, where the lessees argued that they had invested substantial sums of money in an effort to perform as contracted and that JRA had given them assurances that the timelines in the lease were flexible. Chancery Court found that the lease was properly terminated. The lessees appealed.
The appellate court first noted that termination of a contract is an extreme remedy, permitted only for a material breach, and that it should be "sparsely granted." [citations omitted]. It explained further that a breach should only be considered "material" when "there 'is a failure to perform a substantial part of the contract or one or more of its essential terms or conditions, or if there is such a breach as substantially defeats its purpose,' Gulf South Capital Corp. v Brown, 183 So. 2D 802, 805 (Miss. 1966), or when 'the breach of the contract is such that upon a reasonable construction of the contract, it is shown that the parties considered the breach as vital to the existence of the contract,' Matheney v. McClain, 248 Miss. 842, 849, 161 So. 2D 516, 520 (1964). Thus, a tenant's perfect performance of the contract is not required for it to remain in possession, and trivial breaches must be tolerated by the lessor.
Here, however, Mississippi's Supreme Court agreed with Chancery Court that the breeches were material, based on the factors set out in Restatement of Contracts (Second) for determining such. These factors are: 1) the extent to which the injured party will be deprived of the benefit that he or she reasonably expected; 2) the extent to which the injured party can be adequately compensated for the part of that benefit of which he or she will be deprived; 3) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; 4) the likelihood that the party failing to perform or to offer to perform will cure his or her failure, taking account of all the circumstances, including any reasonable assurances; and 5) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing. 52 C.J.S. Landlord & Tenant §189 (2019) (footnotes omitted) (citations omitted), Westlaw. "Thus," stated the court, "substantial performance is not obtained simply by spending a substantial amount of money, but, rather, is judged by how close the tenant came to meeting its obligations under the lease."
In this regard, the lessees failed to provide the appeals court with any good arguments, stating only (and without offering any evidence) that lessor JRA did not take the contract's deadlines seriously. "The question of the materiality of the breach is fact-intensive, and it is not this Court's responsibility to construct an argument for the developers or to pore through the voluminous record seeking support for their generalized assertions," stated the court. "To do so would be to 'act as an advocate for one party to an appeal,' something this Court will not do. Id. (quoting Jefferson v. State, 138 So. 3D 263, 265 (Miss. Ct. App. 2014))."
What the court did have before it was the lease, which laid out specific timetables for each of the 12 parcels. For example, the final tenant improvements for the first parcel were required to be completed in late 2010, with those for the last parcel to be completed by June 2013. But by July 2013, when JRA sought to terminate the lease, no final tenant improvements had been completed, and less than half of the properties were even ready for tenant improvements. At the time the lease was terminated, work had been at or close to a complete standstill for more than a year, and the developers were trying to renegotiate an entirely new master plan. "Under these circumstances," stated the court, "we cannot say the chancellor was manifestly wrong or clearly erroneous in finding FSG's breaches material."
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