It’s A Material World: Some Breaches Are Better Than Others

September 2013

Leases can be extremely complex documents with dozens of provisions spelling out how the parties to the lease should act and specifying certain actions each must take (or that they are prohibited from taking).  But which of those provisions, if violated, will allow the landlord to terminate a lease and evict the tenant?  Generally, not all breaches of a lease will give rise to a right to terminate; rather, a breach must be material in order for the landlord to terminate a lease, as was discussed in Nivo 1 LLC v. Antunez, a recent case decided by the California court of appeals.

Amiteria Antunez rented an apartment on a month-to-month basis for more than ten years.  In May 2012, the landlord served Antunez with a 3-day notice to perform covenants or quit.  The covenant at issue was a provision of the lease that required Antunez to maintain personal property insurance.   Antunez testified that she never had the required personal property insurance, and she did not buy such insurance even after receiving the 3-day notice.  The trial court found, however, that Antunez’s failure to comply with this lease provision did not constitute a material breach of the lease, and therefore did not support landlord’s termination of the lease.  The landlord appealed.

The appellate court upheld the trial court’s decision, explaining that the ability of a landlord to terminate a lease based on a tenant’s breach of that lease turns on whether the tenant’s breach is “material.”  The court goes on to cite case law, which states that “the law sensibly recognizes that although every instance of noncompliance with a contract’s terms constitutes a breach, not every breach justifies treating the contract as terminated.  Following the lead of the Restatements of Contracts, California courts allow termination only if the breach can be classified as ‘material,’ ‘substantial,’ or ‘total.’ (Superior Motels, Inc. v. Rinn Motels, Inc.supra, 195 Cal.App.3d at p. 1051.)”

So, how do you know if a breach is material?  Again citing Superior Motels, the court stated that “the purpose to be served, the desire to be gratified, the excuse for deviation from the letter, [and] the cruelty of enforced adherence” are all factors to be considered.  In Antunez’s case, the court found that she owned nothing worth insuring, and that this particular covenant was more to benefit the tenant rather than the landlord under the lease. The court also found that the landlord was enforcing this provision against Antunez only (as opposed to all of the tenants in the building), in an effort to get rid of someone the landlord saw as a “problem” tenant.

Although this case discusses a residential lease, the same principles may apply to commercial leases as well.  To increase their chances of being able to terminate leases based on non-monetary breaches, landlords should consider expressly defining some of the more important lease obligations as “material” in their leases and even go further to explain the reason such provisions are material.