Contract Interpretation; Force Majeure; Impossibility; Impracticability; Frustration of Purpose — All in One Case
Covid-19 created a number of hardships to businesses. No doubt about it. The case of Fitness International, LLC v. 93 FLRPT, LLC, 48 Fla.L.Weekly D947a (Fla. 2d DCA 2023) exemplifies one such hardship. The issue in this case was how “government-ordered restrictions related to the COVID-19 pandemic impact[ed] the parties’ obligations under a commercial real estate lease.” In essence, a gym–tenant–had a commercial lease. The gym sought a refund for a fifteen-week period that it was required to close or operate below full capacity due to government-imposed restrictions.
Unfortunately for the gym, it lost its arguments under all theories from breach of lease, to force majeure, to impossibility of performance, to impracticability of performance, to frustration of purpose. Here is why.
Breach of the Lease
The commercial lease is a contract. The tenant’s argument was simple – its rent obligations were excused. The problem, however, was the argument hinged on the landlord breaching the commercial lease.
Where a contract is clear and unambiguous, it must be enforced pursuant to its plain language.” “In such a situation, ‘the language itself is the best evidence of the parties’ intent, and its plain meaning controls.’ ” Our goal in contractual interpretation “is to arrive at a reasonable interpretation of the entire agreement, and to construe contractual terms ‘in such a manner as to give them a meaning consistent with the apparent object of the parties in entering into the contract.’ ”
Fitness International, supra (internal citations omitted).
But the landlord did not breach any provision in the lease:
Landlord was not obligated to ensure Tenant’s particular use of the premises, and the government-mandated restrictions did not prevent Tenant from paying rent.
Because Landlord undisputedly has provided Tenant with possession of the premises throughout the lease term and because there is no evidence that Landlord – as opposed to the government – restricted Tenant’s use of the premises in any way, we conclude that Landlord has performed – and has not breached – its obligations under the lease.
Fitness International, supra.
Force Majeure
Tenant argued the government-ordered restrictions should constitute a force majeure issue that excused its rent obligations.
A force majeure clause “excuses performance of contractual obligations — either wholly or for the duration of the force majeure — upon the occurrence of a covered event which is beyond the control of either party to the contract.” Because force majeure clauses are not “opt-out provision[s] and [are] limited in scope,” they “are narrowly construed, and ‘will generally only excuse a party’s nonperformance if the event that caused the party’s nonperformance is specifically identified.’ ”
Fitness International, supra (internal citations omitted).
The court found the lease did not warrant that the gym would have the right to operate notwithstanding government restrictions. Thus, the landlord wasn’t prevented from performing and the government- restrictions did not prevent or hinder the tenant’s obligation to pay rent. “Tenant’s obligation to pay rent was not conditioned upon its ability to continuously operate the premises as a health club throughout the lease term; the fact that government-mandated restrictions affected its ability to do so for seventy-five days out of a fifteen-year (5,475-day) lease term does not create a ‘force majeure event’ under the plain language of this lease.” Fitness International, supra.
It is not a court’s job to rewrite a contract to impose more reasonable obligations or “relieve a contracting party from the consequences of a bad bargain.” Id. (citation and internal quotations omitted).
Impossibility / Impracticability
The tenant further relied on the doctrines of impossibility of performance and impracticability of performance due to the government-mandated restriction.
The doctrine of impossibility of performance applies to discharge a party “from performing a contractual obligation which is impossible to perform and the party neither assumed the risk of impossibility nor could have acted to prevent the event rendering the performance impossible.” But “courts are reluctant to excuse performance that is not impossible but merely inconvenient, profitless, and expensive.”
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The doctrine of impracticability of performance applies to excuse performance when “after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made.” Florida law has “embraced” this doctrine as a defense to a breach of contract claim and “explicitly recognizes that ‘[it] is not limited to strict impossibility, but includes “impracticability” due to unreasonable expense.’
Fitness International, supra (internal citations omitted).
The problem for the tenant: its obligation to pay rent was neither impossible nor impracticable.
Frustration of Purpose
Finally, tenant relied on the doctrine of frustration of purpose arguing that its right to operate the gym – the purpose of the lease – was frustrated. However, this doctrine “generally applies to relieve one party of its contractual obligations where the purpose of a contract has been frustrated because of the failure of consideration, or impossibility of performance by the other party.” Fitness International, supra (internal quotations and citation omitted). But the frustration had nothing to do with the landlord; it had to do with a government-mandated restriction that was not caused by the landlord. Moreover, this doctrine does not apply when the frustration was foreseeable and the commercial lease contemplated the possibility of restrictive laws.
Please contact David Adelstein at [email protected] or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.
