At the risk of triggering the collective COVID PTSD of the real estate world, this article seeks to shed some clarity on a topic that was widely speculated on at the beginning of the pandemic: Do commercial tenants have to continue paying rent if the pandemic forces them to shut down? That question has finally wound its way through the courts, and the clear answer is “yes.”
The LA Fitness Case: Unveiling the Arguments and Legal Defenses
Recently, an appellate court serving Miami-Dade County weighed in on the issue. In that matter, an LA Fitness location rented space which was effectively shuttered as a result of the various governmental closure orders which were put in place during the early days of the pandemic. The tenant argued that they were excused from paying rent during the period of forced closure, relying on a force majeure provision that specifically applied when a party’s performance was prevented by “restrictive laws.” It also argued various other common law defenses, such as the impossibility of performance and frustration of purpose. It is worth noting that those are the theories that tenants have most commonly relied upon when claiming that they are not required to pay rent as a result of the pandemic.
Trial Court Decision: A Tenant’s Temporary Escape from Rent Obligations
The trial court agreed with the tenant and held that they were not required to pay rent during the period of time that they were closed by government order. The landlord appealed, and the appellate court unanimously ruled in its favor. It held that the force majeure provision would only apply if the government restriction had prevented the tenant from paying rent during the shutdown period, which was not the case. Certainly, the shutdown may have made it economically difficult to pay rent, but it did not prevent performance. It held further that the “impossibility” and “frustration of purpose” defenses were not applicable because the risk of “restrictive laws” had been allocated by the parties – to the tenant. In other words, the landlord hit a home run.
The Landlord’s Victory: Analyzing the Appellate Court’s Ruling
The result of the lawsuit is not surprising: the appellate court’s ruling is in line with the result that most commentators had predicted. It does, though, underscore the fact that even an event as momentous as COVID was unable to change basic principles of contract law.
Contract Law Prevails: Lessons for Commercial Tenants in Lease Negotiations
The takeaway here: commercial tenants need to be very specific in their lease negotiations if they intend to provide some protection from the requirement to pay rent if a future pandemic occurs. Certainly, tenants can negotiate that type of contractual protection, but the vast majority of commercial leases do not include it.
In conclusion, commercial tenants must be well-informed and proactive when it comes to addressing rent obligations during unforeseen circumstances such as a pandemic. While this article has shed light on the recent appellate court ruling, it is important to remember that each lease agreement may have unique provisions and considerations. In any real estate transaction or when navigating legal complexities related to property ownership, we recommend seeking the guidance of a qualified real estate attorney.
