Defining Material Breach of a Commercial Real Estate Lease

  1. Landlord Tenant
  2. Defining Material Breach of a Commercial Real Estate Lease
Defining Material Breach of a Commercial Real Estate Lease
Landlord Tenant, Real Estate

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.

An Arizona real estate lawyer can assist you if you need legal counsel during your real estate transaction. Our law firm also provides experienced legal representation and advocacy if a real estate dispute occurs, such as the material breach of a commercial lease.

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.

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