Miami Herald Real Estate Column: “Real Estate Counselor: Ruling Finds Health Club On Hook for Lease Payments During COVID Closure”

The firm’s latest Miami Herald column was authored by managing partner Oscar R. Rivera and appears in today’s edition of the newspaper.  The article, which is titled “Real Estate Counselor: Ruling Finds Health Club On Hook for Lease Payments During COVID Closure,” focuses on the government-mandated COVID-19 business closures at the start of the pandemic in 2020. For LA Fitness and its parent company Fitness International, it equated to months of closed facilities that were generating no revenue but requiring monthly lease payments.  Oscar’s article reads:

. . . There was a great deal of conjecture about whether the “force majeure” provisions in leases would shield businesses that were required to close due to governmentally issued mandates from their payment obligations under their leases. These clauses typically relieve parties from the performance of some or all contractual obligations, and from the consequences of failing to perform those obligations, where performance is rendered effectively impossible by circumstances beyond their control. Many thought the COVID closure fit the bill for the application of such provisions to a tee, and litigation would surely ensue.

Lawsuits were indeed filed, and one of the first cases over this exact question to reach conclusion by a state appellate court was decided recently in favor of the landlord for an LA Fitness location in Bradenton. The state’s Second District Court of Appeal affirmed the lower court’s summary judgment ruling and found the health club would not be entitled to a refund of its lease payments made during the mandated closure period.

The company made all rent payments required under the lease during the lockdown, which was from March 17 to June 12, 2020, but it eventually filed suit in August 2021 seeking a refund of those payments. It primarily based its claims on the lease’s force majeure clause, arguing that it was excused from paying rent during the closure period, and it also relied upon the common law doctrines of frustration of purpose, impossibility of performance, and impracticability of performance.

In response, the landlord argued that the required closure did not preclude or restrict the tenant from performing its contractual obligation to pay rent, which it in fact paid. It also contended that the lease did not require the tenant to operate continuously, nor did it restrict the tenant’s permissible use solely to operating a health club. Therefore, it asserted that neither the force majeure clause nor the equitable doctrines of frustration, impossibility, or impracticability applied.

The trial court agreed, and it found that while the use of the premises “was limited by the COVID restrictions,” no evidence “suggest[ed] that [Landlord] precluded use of the premises or did anything to interfere with [Tenant’s] use of the premises.” It also found the landlord had not “failed to perform any ‘act’ required by the lease.”

The court concluded that the force majeure clause did not apply to excuse the health club’s rent obligation, and the landlord was not in breach of the terms of its lease by refusing to abate the rent during the closure period.

In the subsequent appeal, the landlord advanced various arguments against the equitable doctrines, primarily maintaining that none apply if the relevant risk was foreseeable. It noted that the risk of government restrictions was foreseeable because the force majeure clause specifically mentions the risk of “restrictive laws.”

The tenant asserted that its rent obligation was excused during the closure period because the landlord was in breach of its contractual warranty that the tenant would have the right to operate a health club throughout the term of the lease.

The appellate panel unanimously disagreed, finding that the meaning of the language in question in the lease agreement only warranted that LA Fitness’s use of the premises as a health club would not violate any exclusive use rights that the landlord had granted or could grant to other tenants. The landlord never warranted that the tenant would have the right to operate a health club from the premises throughout the term.

As to the question of whether the closure constituted a covered event under the lease’s force majeure clause, the panel found that the government-mandated restrictions unquestionably were “restrictive laws.”

However, it rejected the tenant’s argument that the restrictions hindered or prevented it from performing its obligation to pay rent, which it had paid during the closure period, and found that the landlord had not agreed to forgive the tenant’s rent obligation if government-mandated restrictions prevented it from using the premises in a particular manner.

The panel concluded that it is “mindful of the hardships that Tenant and countless other businesses faced at the outset of the COVID-19 pandemic,” but neither the lease nor the equitable doctrines pled supported relief from the tenant’s payment obligations. . .

Oscar concludes his article by noting that with this ruling, Florida businesses with similar lease provisions have been put on notice as to how the state’s courts are likely to view their arguments in analogous cases.  He writes that the courts may sympathize with all the affected businesses and organizations, but they will rule in accordance with the applicable laws, contractual terms and legal doctrines, and they will be likely to find in favor of the landlords in similar cases.

Our firm salutes Oscar for sharing his insights into the takeaways from this recent appellate decision with the readers of the Miami Herald.  Click here to read the complete article in the newspaper’s website.