HRPT ADVISORS, INC. vs. MACDONALD, LEVINE, JENKINS & CO., P.C.

LENK, J. The plaintiff, HRPT Advisors, Inc. (HRPT), owner of an office building in downtown Boston, brought this action against a certified public accounting firm, MacDonald, Levine, Jenkins & Co., P.C. (tenant), by complaint (as amended) seeking to recover rent due under a lease of a portion of the premises (count 1) and, alternatively, an amount due for use and occupancy (count II). Initially, a Superior Court judge denied HRPT's motion for summary judgment, concluding that there were genuine issues of material fact present but nonetheless ruling that the lease at issue terminated by operation of law. On cross motions for summary judgment, a second judge denied HRPT's motion and allowed the tenant's motion as to count I for rent under the lease, and allowed HRPT's motion and denied the tenant's motion as to liability on count II for use and occupancy. A third judge awarded HRPT damages against the tenant for use and occupancy in the amount of $153,181.88. After entry of a final judgment, the parties cross-appealed.

We set forth the undisputed facts established on the summary judgment record, which includes a statement of agreed facts and various affidavits. On July 14, 1986, as security for payment of a promissory note, the trustees of 31 Milk Street Realty Trust, as owners of the office building located at 31 Milk Street in Boston (subject property), granted a mortgage on that property to a Boston bank. The mortgage provides, in pertinent part:

"The Mortgagor covenants: ". . .

(8) . . . faithfully to keep, observe and satisfy all the obligations on the part of the lessor to be kept, performed and satisfied under every lease from time to time in force with reference to the Property, . . . and on the demand of the holder, to assign and deliver to the holder any or all such leases, or the rents and profits thereof, such assignments . . . in all events to provide that the Mortgagor

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shall retain the rents and profits thereof until a default occurs in any covenant or condition in this Mortgage . . . , and the holder shall have the right, by the execution of suitable written instruments from time to time to subordinate this Mortgage, and the rights of the holder hereunder, to any lease or leases from time to time in force with reference to the Property, and, on the execution of any such instrument, this Mortgage shall be subordinate to the lease for which such subordination is applicable with the same force and effect as if such lease had been executed and delivered, and a notice thereof recorded to the extent required to give notice to third persons, prior to the execution, delivery and recording of this Mortgage[.]"

As additional security for the mortgage loan, the trustees concurrently executed a "collateral assignment of leases and rents" (collateral assignment) providing for the assignment to the bank of the trustees' interest in any and all leases then in existence or subsequently entered into by the trustees, together with all rents arising from the leases. The collateral assignment provides, in pertinent part:

"Upon or at any time after a Default the Assignee . . . may at its option . . . take possession of the premises . . . and have, hold, manage, lease and operate the same on such terms and for such period of time as the Assignee may deem proper, and either with or without taking possession of said premises or holding, managing, leasing and operating in its own name, demand, sue for or otherwise collect and receive all rents, income and profits of said premises, including those past due and unpaid . . . ."

On July 25, 1988, the trustees, as lessor, and MacDonald, Levine, Savy & Co., P.C., [Note 2] as lessee, entered into a ten-year lease agreement (lease) regarding 5,305 square feet of office space (leased premises) on the second floor of the subject property. The lease rent was $10,941.56 per month for the first five years, $14,036.15 per month for years six through eight, and $14,478.23 per month for years eight and nine. The lease provides, in pertinent part:

"14.6 ASSIGNMENT OF RENTS AND TRANSFER OF TITLE.

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(a) With reference to any assignment by Landlord of Landlord's interest in this Lease, or the rents payable hereunder, conditional in nature or otherwise, which assignment is made to the holder of a mortgage on property which includes the Premises, Tenant agrees that the execution thereof by Landlord, and the acceptance thereof by the holder of such mortgage shall never be treated as an assumption by such holder of any of the obligations of Landlord hereunder unless such holder shall, by notice sent to Tenant, specifically otherwise elect and that, except as aforesaid, such holder shall be treated as having assumed Landlord's obligations hereunder only upon foreclosure of such holder's mortgage and the taking of possession of the Premises.

". . .

"14.10 PROVISIONS BINDING, ETC. Except as herein otherwise provided, the terms hereof shall be binding upon and shall inure to the benefit of the successors and assigns, respectively, of Landlord and Tenant (except in the case of Tenant, only such assigns as may be permitted hereunder) . . .

. . .

"14.15 RIGHTS OF MORTGAGEE OR GROUND LESSOR. This Lease shall be subordinate to any mortgage . . . from time to time encumbering the Premises, whether executed and delivered prior to or subsequent to the date of this Lease, if the holder of such mortgage . . . shall so elect . . . . If this Lease is subordinate to any mortgage . . . and the holder thereof (or successor) shall succeed to the interest of Landlord, at the election of such holder (or successor) Tenant shall attorn to such holder and this Lease shall continue in full force and effect between such holder (or successor) and Tenant. Tenant agrees to execute such instruments of subordination or attornment in confirmation of the foregoing agreement as such holder may request, and Tenant hereby appoints such holder as Tenant's attorney-in-fact to execute such subordination or attornment agreement upon default of Tenant in complying with such holder's request."

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The trustees defaulted on their obligations to the bank and, on July 25, 1991, the bank made entry on the subject property for purposes of foreclosure. [Note 3] Also on July 25, the bank delivered to the tenant a written notice stating that the bank was the holder of the mortgage note referenced in the collateral assignment and that the trustees were in default under the collateral assignment, and directing the tenant to make all rental payments under the lease to the bank. [Note 4] At that time, the tenant owed no arrearage under the lease.

The tenant, giving notice that it refused to recognize the bank as its landlord, responded that the bank could not enforce the lease as mortgagee in possession and asserted that the bank's entry under the mortgage and its demand for rent terminated the lease. The tenant expressed a willingness to negotiate a new lease, but the bank refused, insisting that any rent tendered would be applied to rent due under the existing lease. As early as August, 1991, and at times thereafter, the bank or its agent advised the tenant that the bank could enforce the lease, and

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that the bank would take legal action seeking damages and eviction if the tenant refused to honor the lease. Beginning in September, 1991, and continuing each month thereafter through June, 1992, the bank's managing agent issued invoices to the tenant claiming rent due under the lease, but the tenant made no payments.

On February 14, 1992, the bank, "with a reservation of its rights under the existing Lease and under applicable law," made demand upon the tenant for all past due arrearages under the lease, and gave the tenant written notice that it had scheduled a foreclosure sale of the subject property for February 25, 1992. This notice provides, in pertinent part:

"In accordance with your lease (the 'Lease') arrangement with the Landlord, the Bank hereby notifies you that if and when the foreclosure sale is consummated, and in the event that the Bank is the successful purchaser of the mortgaged premises at the aforesaid foreclosure sale, your Lease shall not be extinguished by the Bank's foreclosure sale and the Bank shall require that you attorn to the Bank or its successor such that your Lease shall continue in full force and effect."

By instrument executed and recorded one day before the foreclosure sale, the bank, as holder of the mortgage from the trustees, subordinated the mortgage "to the leases presently existing with respect to the Premises . . . with the same effect as if the Leases had been executed, delivered and recorded prior to the . . . [m]ortgage." The bank purchased the subject property at the foreclosure sale, subsequently transferring title to a wholly owned subsidiary and assigning the lease to the subsidiary. [Note 5] In June, 1992, the subsidiary conveyed the subject property to HRPT and assigned the lease to HRPT. [Note 6] HRPT informed the tenant that HRPT had purchased the building and that the tenant should pay rent to HRPT. The tenant made no rental payments under the lease and this litigation ensued. [Note 7]

"Summary judgment is appropriate where the 'pleadings,

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depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.' " Highlands Ins. Co. v. Aerovox Inc., 424 Mass. 226, 232 (1997), quoting Mass.R.Civ.P. 56(c), 365 Mass. 824 (1974).

1. Applicability of the doctrine of paramount title. In allowing summary judgment for the tenant on HRPT's claim for rent due under the lease, the second judge concluded that the bank's entry and demand for rent as mortgagee in possession operated to terminate the lease under the common law doctrine of paramount title. [Note 8] On appeal, HRPT argues that the judge's analysis fails to account for the bank's status as assignee under the collateral assignment, which gave the bank the right to enforce the lease as the trustees' successor. We agree. On the summary judgment record, we conclude that the judge misperceived the nature of both the bank's demand as assignee and its entry as mortgagee, and that the lease was not terminated by exercise of the mortgagee's paramount title. [Note 9]

The long standing general rule in Massachusetts is that entry by a mortgagee in possession under a mortgage granted prior to

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execution of a lease ousts the tenant and terminates the lease where the mortgagee asserts his paramount title qua mortgagee. See Fitchburg Cotton Manufactory Corp. v. Melven, 15 Mass. 268, 269 (1818); Smith v. Shepard, 15 Pick. 147, 149 (1833); Winnisimmet Trust, Inc. v. Libby, 234 Mass. 407, 410 (1920); International Paper Co. v. Priscilla Co., 281 Mass. 22, 34 (1932); Highland Trust Co. v. Slotnick, 289 Mass. 119, 121-122 (1935). [Note 10] See also Schwartz, Lease Drafting in Massachusetts s. 9.29, at 488 (1961). The relevant inquiry is not whether the mortgagee's title is paramount, but whether the mortgagee has sought to exercise its superior possessory right over that of the tenant following the landlord's default.

"It is not enough . . . that a third party has a paramount title; but, to excuse the payment of rent, the [lessee or tenant] must have been ousted or evicted, under that title." International Paper Co. v. Priscilla Co., supra at 29, quoting Morse v. Goddard, 13 Met. 177, 179 (1847). Nor is mere entry sufficient; to assert paramount title, a mortgagee must couple entry with demand for rent as mortgagee (i.e., incident to his superior title) and actual or constructive eviction. Winnisimmet Trust, Inc. v. Libby, 247 Mass. 560, 564 (1924). Threats to evict a tenant will suffice. Ibid. Where a mortgagee makes such demands and threats, the tenant is no longer liable to pay rent under an existing lease, but is obligated to make payment to the mortgagee. Ibid. See Fitchburg Cotton Manufactory Corp. v. Melven, supra at 269; Smith v. Shepard, supra at 149; Morse v. Goddard, supra at 180; Knowles v. Maynard, 13 Met. 352,

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354-355 (1847); Cook v. Johnson, 121 Mass. 326, 327-328 (1876). [Note 11]

"[T]he mortgagee, by entry, may either cause the leases and his right to rents thereunder to terminate, if he demands rent, or, if he makes no demand upon the tenant, will leave the relationship of lessor and lessee undisturbed, with the result that the lessor alone will continue to have the right to receive rent. The mortgagee may avoid these undesirable alternatives by the simple process of acquiring the lessor's interest under the leases and by demanding rent from the lessee qua lessor and not as mortgagee. This may be accomplished through the medium of an assignment of the lessor's interest in the leases or in the rents which may be effected at the time of execution of the mortgage . . ." (footnotes omitted). Schwartz, supra s. 9.29, at 489-490.

Here, consistent with accepted practice, the bank was both assignee of the lease under the collateral assignment, and mortgagee in possession. As assignee, the bank held the interest in the rents in its own right, and properly could seek to recover the rents as such. See Winnisimmet Trust, Inc. v. Libby, 232 Mass. at 492. Upon its entry as mortgagee, the bank at that time made demand for payment of rent under the lease by specific reference to its rights as assignee under the collateral assignment, rather than as mortgagee in possession, a fact which the tenant's principal admitted by affidavit. See International Paper Co. v. Priscilla Co., 281 Mass. at 34-35, where the Supreme Judicial Court noted, on similar facts, that the assignee-mortgagee might have done so, but did not.

"When a motion for summary judgment is made and supported as provided in . . . rule [56], an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If he does not so respond, summary judgment, if appropriate, shall be entered against him." (Emphasis supplied.)

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Mass.R.Civ.P. 56(e), 365 Mass. 825 (1974). The bank having established by documentary evidence that it gave notice of exercise of its rights as assignee, rather than as mortgagee, it was incumbent upon the tenant to show otherwise. We conclude that the tenant failed to meet its burden.

In an affidavit filed in opposition to HRPT's motion for summary judgment, Carl F. Jenkins, the tenant's president, stated that the notice of the bank's exercise of its rights as assignee was but a "single communication" as such. He then states that over the following six or seven months, the bank, in its capacity as mortgagee in possession, made demands that the tenant pay rent and, as early as August, 1991, asserted that, if the tenant refused to honor the lease, the bank would seek damages and eviction. [Note 12] On the summary judgment record, it is undisputed that the bank (or its agent) made such demands for payment of rent and threats of eviction for nonpayment of rent; similarly, it is undisputed that the bank was mortgagee in possession. However, in addition to lacking the requisite specificity under rule 56, Jenkins's statements that the bank's rent demands were made in its capacity as mortgagee, whether viewed either as a legal conclusion, see Florio v. Kennedy, 18 Mass. App. Ct. 917, 918-919 & n.4 (1984), or as a matter of opinion, see Dolloff v. School Comm. of Methuen, 9 Mass. App. Ct. 502, 505 (1980), are at best statements of both an ultimate fact and conclusion of law and thus cannot be used to defeat summary judgment. Ibid.

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Florio v. Kennedy, supra at 919. The accountant Jenkins was, in any event, not competent to testify thereto, see Boston v. John Hancock Mut. Life Ins. Co., 35 Mass. App. Ct. 318, 321 n.6 (1993), and thus these statements do not constitute "such facts as would be admissible in evidence." Andrade v. Baptiste, 411 Mass. 560, 561 (1992), quoting Mass.R.Civ.P. 56(e). Apart from this inadmissible material, the tenant produced no evidence, documentary or otherwise, to establish its claim that the bank purported to exercise its superior possessory rights as mortgagee, In these circumstances, we think it necessary, to defeat summary judgment, for the tenant to have made some specific reference to the circumstances in which the bank purportedly acted as mortgagee vis-a-vis the tenant so as to create a conflict in the evidence to be produced at trial. Compare Community Natl. Bank v. Dawes, 369 Mass. 550, 558 (1976). Where, as here, a secured party has dual roles as assignee and mortgagee and purports to act pursuant to its rights in only one capacity, it is his duty when giving notice to articulate those rights by special reference, see International Paper Co. v. Priscilla Co., 281 Mass. at 34, as the bank did here. Similarly, where a lessee claims that a secured party has exercised rights other than as articulated by notice to the lessee, we think it no less reasonable to require that the lessee demonstrate this by tangible evidence. [Note 13] The tenant made no such showing here.

On this record, the bank's outward manifestations to the tenant were consistent with exercise of its rights as assignee. Cf. Polaroid Corp. v. Rollins Envtl. Servs. (NJ), Inc., 416 Mass. 684, 696-697 (1993). The bank's agent was appointed to collect the lease rent, not as an incident of the bank's entry for purposes of foreclosure, but in the exercise of the bank's rights under the collateral assignment. See Commonwealth v. Advantage Bank, 406 Mass. 885, 887 (1990). In these circumstances, the bank's mere entry as mortgagee, without further exercise of its rights qua mortgagee, did not operate to terminate the lease. [Note 14] Compare International Paper Co. v. Priscilla Co., supra at 34-36. Under

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the lease, if, as happened here, the bank as mortgagee succeeded to the trustees' interest as landlord and so elected, the tenant expressly agreed that it would attorn to the bank as mortgagee and that the lease was to continue in full force and effect. [Note 15] The record establishes conclusively that the bank, act-

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ing in its capacity as assignee under the collateral assignment or as mortgagee, assiduously and successfully sought to preserve both its interest in the lease as successor to the original landlord and the tenant's tenancy.

2. Subordination of the mortgage. As alternative grounds in support of the judge's decision, however, the tenant also argues that the lease in any event was extinguished upon the bank's foreclosure of its mortgage, and thus that HRPT has no standing to assert any rights to rent due under the lease as successor to the bank. In the typical instance, foreclosure also serves to terminate a tenancy by operation of law where the tenancy comes into existence after the mortgage. Federal Natl. Mort. Assn. v. Therrian, 42 Mass. App. Ct. 523, 524 (1997). "It is well settled . . . [however], that the rights of a tenant in possession of real estate, under a lease given prior to the execution of a mortgage on the same premises, are not extinguished by a foreclosure of the mortgage, and that the purchaser at a foreclosure sale acquires no greater interest than the mortgagor had, and with the sale becomes the landlord of the lessee." Gorin v. Stroum, 288 Mass. 6, 11 (1934). See Federal Natl. Mort. Assn. v. Therrian, supra at 524 n.3.

The same practical result obtains where, as happened here, the mortgagee elects to subordinate its paramount mortgage to a previously junior lease. Prior to foreclosure, the bank gave notice to the tenant that it planned to subordinate the mortgage and that the lease would continue, and that if the bank purchased the subject property at the sale, as indeed happened, the bank exercised its election as permitted by the lease to require the

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tenant to attorn and to have the lease continue in full effect. [Note 16]

The process of displacing a prior lien by one previously junior to it conforms to accepted practice. Whether a mortgagee will exercise its paramount title to terminate the lease or will seek to subordinate the mortgage to the lease depends on its assessment of whether continuation of the existing lease is preferable (e.g., for amount of rent or length of term) or whether the market dictates that it can obtain a new lease at better terms. See Schwartz, supra s. 9.32, at 500-501. [Note 17] Here, the mortgage having been properly subordinated to the lease, the lease was not extinguished upon foreclosure of that mortgage. The bank's interest in the lease as landlord thereafter having been assigned to its subsidiary, and the subsidiary's interest assigned to HRPT, there is no merit in the argument that HRPT lacks standing to pursue its claim for rent due under the lease.

3. Effect of G. L. c. 183, s. 4. The judge also ruled that HRPT's claim for rent under the lease was barred under the recording statute, G. L. c. 183, s. 4, [Note 18] because the tenant lacked

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notice of the unrecorded assignment of the lease from the banks subsidiary to HRPT (and thus also, we infer, of the prior unrecorded assignment from the bank to its subsidiary). We disagree. "The purpose of the recording statute . . . is to show the condition of the title to a parcel of land and to protect purchasers from conveyances that are not recorded and of which they have no notice." Lamson & Co. v. Abrams, 305 Mass. 238, 244 (1940). See Potter v. Aiden Lair Farms Assn., 225 Mass. 97, 99 (1916); Norton v. West, 8 Mass. App. Ct. 348, 352 (1979). See also Fanger v. Leeder, 327 Mass. 501, 506-507 (1951); Mister Donut of America, Inc. v. Kemp, 368 Mass. 220, 224 (1975); Snyder v. Sperry & Hutchinson Co., 368 Mass. 433, 437-439 (1975); Ecclesiastes 3:1, Inc. v. Cambridge Sav. Bank, 10 Mass. App. Ct. 377, 384 (1980). The tenant is not a purchaser, nor may it claim entitlement, under any theory, to rent due under the lease. Compare Bemis v. Wilder, 100 Mass. 446, 448 (1868); Potter v. Aiden Lair Farms Assn., supra at 99. In this context, the failure to record the relevant assignments did not prejudice the tenant.

4. Conclusion. The lease never having been terminated by the actions of the trustees, the bank, or its successors, [Note 19] the tenant is liable in damages to HRPT for unpaid rent under the lease from August 1, 1991, to the end of the lease term, less any amounts

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paid by the tenant pursuant to the parties' 1993 letter agreement and subject to mitigation by HRPT, matters to be determined upon remand. Deciding as we do, we need not decide the tenant's cross appeal regarding use and occupancy damages.

The judgment is vacated. Summary judgment is to be entered for the plaintiff as to liability on count I for rent due under the lease, and the matter is remanded to the Superior Court for a new determination of damages.

So ordered.