Landlord Breached First, But Tenant Breached Materially

What Happened: A landlord got agita after reading in the local newspaper that its tenant, the local Golden Corral restaurant, had closed down. Upon finding the property apparently abandoned and in very dirty condition, it changed the locks. It then sent the tenant a notice to cure the breach—that is, nonpayment of rent—within 15 days. When the tenant didn’t pay up, it terminated the lease and sued for breach of contract. While acknowledging that it didn’t pay rent, the tenant claimed that it was the landlord who breached the lease first by changing the locks.

Ruling: The Iowa court sided with the landlord.

Reasoning: While both sides were in breach, the court reasoned that the key question wasn’t who breached first but who committed a material breach and thereby discharged the lease duties of the other. Under the terms of the lease, nonpayment of rent wasn’t a breach of the lease; however, failure to pay within 15 days of receiving notice to cure was material. Changing the locks was a bit trickier because the lease didn’t specifically address this issue. But based on general principles of contract law (contained in the Restatement (Second) of Contracts), the court concluded that changing the locks wasn’t a material breach in this situation because, among other things, it didn’t deprive the tenant of “a reasonably expected benefit” given the evidence that the tenant had already abandoned the property; nor did it constitute an act of bad faith given the landlord’s sincere belief it had the right to change the locks. Result: Since the tenant committed the only material breach, it owed the landlord unpaid rent of $290,625, unless the court were to decide on a different amount in subsequent proceedings.

• Dolly Invs., LLC v. MMG Sioux City, LLC, 2023 Iowa Sup. LEXIS 1, 2023 WL 115159