Supreme Court Holds that Mongeon Bay Properties is Entitled to Terminate its Ground Lease with Mallets Bay Homeowner’s Association

In Mongeon Bay Properties, LLC v. Mallets Bay Homeowner’s Association, Anthony J. Sineni and Merrimack Mortgage Company, 2016 VT 64 (June 10, 2016), the Vermont Supreme Court affirmed the trial court’s finding that the Association breached its lease but reversed its refusal to terminate the lease and issue a writ of possession to MBP.

Issue: More than 25 camps are a part of the Association, 10 of which are right on the shore of Lake Champlain. The Association has had a ground lease from the Mongeon family partnership since 1995. The lease requires the Association to keep the land in good condition, and includes an “Event of Default” clause and a statement regarding remedies for default. Under the lease, the Association had to perform repairs and upkeep to the property, but did not do so, resulting in MBP sending the Association a notice of default for failing to maintain the waterfront seawall. While the Association did do some work to protect the embankment from further erosion, it was only meant to be an immediate fix. The trial court found that the Association’s failure to properly address the erosion amounted to waste, but did not grant MBP a forfeiture of the lease, instead awarding it $135,000 to remediate and restore the land. Both parties appealed, each contesting the court’s two conclusions, respectively.

Holding: With regard to the trial court’s first finding, that the Association’s maintenance failure constituted waste, the Court affirmed, finding that the embankment was within the scope of the lease, that the erosion was not ordinary wear and tear, and that the erosion did constitute waste. The Court noted that just because the erosion was caused by natural events did not mean that it was not waste. With regard to the trial court’s award of monetary damages instead of terminating the lease and evicting the Association members, the Court remanded for reconsideration, finding that while forfeiture under a lease is disfavored, that general policy statement does not mean that, if there is an established default and the lessor timely invokes the contractual right to terminate, then a court may decline to terminate the lease. Since the trial court found that the Association had defaulted under the terms of the lease and since MBP timely asserted its election to terminate the lease, MBP was entitled to terminate and should receive a writ of possession.