– Commercial tenants seeking relief from paying rent due to pandemic-related downturns in business have turned to the equitable doctrines of frustration of purpose and impossibility.
– The impossibility doctrine examines if the action to be performed in a contract was possible under the circumstances, while the frustration of purpose doctrine analyzes if the parties can achieve the stated or implied purpose of the contract.
– Recent cases have seen state and federal courts examining the specific terms of each lease to determine if tenant performance was excusable due to frustration of purpose or impossibility, resulting in differing conclusions across the country.
– The focus on specific lease language highlights the importance of careful and specific lease drafting. 1. The court found that the purpose of CB Theater’s lease was frustrated during the time when the government shut down theaters due to the COVID-19 pandemic.
2. The court rejected CB Theater’s argument that the lack of new film releases and consumer reluctance to return to the theater continued to frustrate the purpose of the lease after theater reopenings at reduced capacity were approved by the state government.
3. Rental relief was granted to CB Theater only for periods when it was legally prohibited from opening by government order, not when it had the legal right to open but chose not to due to a diminished business environment. 1. The court declined to apply the impossibility doctrine to the period in which the theater was fully shut down by a government order.
2. The court looked to specific language of a section of the lease titled, “Effect of Unavoidable Delays,” which included “governmental action” as one of the factors excusing a party’s obligation to perform.
3. The court held that, instead of requiring CB Theater to pay back rent for the period of government shutdown, the remedy provided in the lease is to extend the lease term by the amount of time for which the theater was fully closed.
4. The court distinguished the “Effect of Unavoidable Delays” clause from a force majeure clause, under which the failure to timely pay rent would not have been an excusable default. – The force majeure clauses in the leases of CEC Entertainment did not excuse nonpayment of rent.
– The leases specifically allocated the risk of frustration of purpose by contract in Washington, California, and North Carolina.
– The force majeure clauses in the leases of The Gap Inc. identified governmental preemption of priorities in connection with a national or public emergency, which did not support the frustration of purpose argument.
– The court found that The Gap’s purpose of operating retail stores in Midtown Manhattan was not frustrated by the pandemic, as the stores eventually commenced curbside pickup sales. – Cole Haan Company Store LLC was not relieved of its duty to pay rent despite government laws or regulations preventing performance, as stated in the lease’s force majeure clause.
– Caffé Nero Americas Inc.’s frustration of purpose argument was dismissed due to specific lease conditions indicating the purpose of the café to serve customers food and coffee inside the premises. 1. The court rejected UMNV’s argument that the force majeure clause in the lease prevented the frustration of purpose defense.
2. The force majeure clause only covered impossibility, not the risk of performance being possible while the purpose of the contract was frustrated.
3. Under the frustration of purpose doctrine, Caffé Nero’s obligation to pay rent was discharged during the period when the café could not serve food and beverage on the leased premises. – The economic forces surrounding the pandemic were found to be a market change rather than a frustration of purpose in the case of 35 East 75th Street Corporation v. Christian Louboutin LLC.
– The pandemic did not bar the tenant from selling its products, but merely reduced foot traffic in the store’s area, according to the court in 35 East 75th Street Corporation v. Christian Louboutin LLC.
– The force majeure clause in the lease of Christian Louboutin LLC specifically provided that the nonpayment of rent was not an excusable default but extended the period of performance for the amount of time the delay caused.
– The court in CAB Bedford LLC v. Equinox Bedford Ave Inc. rejected the tenant’s frustration of purpose argument, stating that a shutdown lasting a few months does not frustrate the purpose of the entire 15-year lease.
– The court in CAB Bedford LLC v. Equinox Bedford Ave Inc. also rejected the tenant’s impossibility argument, finding that operation of the gym had since resumed and the impossibility doctrine was not applicable.
– In Simon Property Group L.P. v. Pacific Sunwear Stores LLC, the details of the findings were not provided. – The frustration of purpose and impossibility doctrines are important factors in commercial lease disputes.
– The language of the lease contract is crucial in determining the outcome of such disputes.
– Different courts across the country have varied in their interpretations of these doctrines.
https://www.hklaw.com/en/insights/publications/2021/04/frustration-of-purpose-and-impossibility-doctrines-in-the-covid19-era
Leave a Reply