Article by NRTA Guest Contributors: Michael A. Geibelson and Daniel L. Allender, Robins Kaplan LLP

As we continue to adjust to the new reality of COVID-19’s variants, so too have the courts evolved their thinking about the frustration of purpose defense in lease disputes arising out of the COVID-19 pandemic and government closures. In 2020, an early bankruptcy court decision provided tenants a measure of optimism about the courts’ willingness to excuse rent obligations in light of government operating restrictions. In re Hitz Restaurant Group, No. 20-B-05012, 2020 WL 2924523 (Bankr. N.D. Ill. June 3, 2020), held that the pandemic and resulting government orders constituted a force majeure under the lease that warranted some relief.

Then, in 2021, tenants heralded several trial court decisions that recognized how completely the pandemic roiled tenants’ ability to operate retail stores as contemplated when the leases were executed. In January 2021, another bankruptcy court in In re: Cinemex USA Real Estate Holdings, Inc, No. 20-14695-BKC-LMI, (Bnkr. S.D. Fla. Jan. 26, 2021), held because of the government restrictions, the tenant was not required to pay rent for the time that the theater was closed, but that the lease term was extended for the same period. Two subsequent decisions outside the bankruptcy context squarely found that frustration of purpose was a legally sufficient defense to the enforcement of a lease in the circumstances of COVID. UMNV 205-207 Newbury, LLC v. Caffé Nero Americas, Inc, 2084CV01493-BLS2, 2021 WL 956069 (Mass. Super. Feb. 8, 2021) (“Caffe Nero”), and Bay City Realty, LLC v. Mattress Firm, Inc., 2021 WL 1295261, *8-9 (E.D. Mich, Apr. 7, 2021) (“Mattress Firm”).

Other tenant victories were procedural in nature, or modest at best. And in the intervening months, tenants lost many more cases than they won. However, two recent appellate decisions may restore a bit of optimism in tenants’ chances in trial courts and on appeal.

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