Landlord tenant. Termination of long-term ground lease for waste. Trial court cannot balance the equities and award damages in lieu of writ of possession.

Mongeon Bay Properties, LLC v. Mallets Bay Homeowner's Association, 2016 VT 64  (filed June 10, 2016)

ROBINSON, J. This case calls upon us to determine whether, and under what circumstances, a court may decline on equitable grounds to enforce a provision in a long-term ground lease giving the lessor the right to terminate the lease and reenter the premises in the event of a default. Plaintiff MBP sued defendant Association seeking to void a multi-year ground lease for property abutting Lake Champlain on account of alleged breaches of the covenants in that agreement.  After a bench trial, the trial court concluded that the Association had violated its obligations under the lease by failing to reasonably maintain the embankments abutting Lake Champlain to protect them from erosion. However, the court declined to enforce the forfeiture clause in the lease against the Association, and awarded MBP damages to enable it to undertake the necessary restoration and bank protection. MBP appeals the trial court's award of damages in lieu of forfeiture. We reverse the court’s refusals to declare termination of the lease and to issue a writ of possession to MBP, and remand for reconsideration of MBP's remedy.

The trial court explained that the primary interest of the lessor under a long-term ground lease is return of the land itself at the end of the lease in substantially the same condition as when the lease was initiated, absent "normal wear and tear" that would reasonably be expected over the forty-year lease term. The trial court concluded that the Association's failure to adequately address lakeside erosion, causing substantial injury to the leased property, amounted to "waste."  Despite its ruling in MBP's favor the court concluded "lease forfeiture here would be especially inequitable, and a sanction entirely out of proportion to the lease violations." Concluding that an award of damages for remediation would afford adequate relief, the court awarded MBP a judgment for $135,000—the expected cost of remediation and restoration of the bank.

MBP contends that the trial court lacked the authority to conduct the kind of equitable balancing that it undertook in this case and that the trial court should have enforced the terms of the lease. The ground lease provided, "in the event that an Event of Default shall have occurred, [and] upon issuance of a writ of possession, the rights of the Lessee . . . shall immediately cease and become void." It further stated, "[i]f any Event of Default shall have occurred and be continuing, whether or not the term of this lease shall have been terminated pursuant to the Lease, the Lessor may enter upon and repossess the Land or any part thereof pursuant to Vermont law."

Although the law disfavors forfeiture clauses, this Court has never declined to enforce a contractual forfeiture provision when the landlord timely invoked the forfeiture right. This is a case of first impression insofar as the Association urges us to rely on our general policy disfavoring forfeitures to authorize the trial court to invoke general equitable considerations in declining to enforce a contractual agreement providing for forfeiture in the event of default, even though the lessor timely invoked the clause and elected termination.  We decline to do so for several reasons.

 First, our precedent does not support setting aside clearly applicable, contracted-for remedies. Second, the Restatement provides that termination by the landlord is an available remedy for waste as long as landlord gives tenant opportunity to restore leased property to its former condition before terminating lease. See Restatement (Second) of Property: Landlord & Tenant § 12.2(2).  Finally, our statutes contemplate the ejectment of tenants on the basis of a breach of a stipulation contained in a lease. 12 V.S.A. § 485.

For these reasons, we conclude on the basis of the trial court's findings that MBP was entitled to terminate the ground lease as a matter of law, and is entitled to a writ of possession.

Reversed and remanded for determination of a remedy in light of the above.

SCOVT NOTE. For the case after remand see Mongeon Bay Properties v. Mallets Bay, 2017 VT 27(Reversed for failure to exercise discretion. Trial court had discretion to stay writ of possession for at least a short period notwithstanding termination of lease and Court’s earlier mandate directing change of possession.)