Recent Rulings In COVID-19-Related Lease Disputes – Real Estate and Construction

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Courts in three different jurisdictions have recently ruled in disputes with their landlords over rental obligations during the COVID-19 pandemic against commercial tenants who have refused to defend tenants under common law and interpreted the leases as written.

Illinois State Court

Ponte Gadea Chicago, LLC v Banana Republic, LLC, No. 20 L 6235 (Ill. Cir. Ct., Cook Cty March 24, 2021) – The landlord sued tenant Banana Republic for failing to pay rent during the pandemic. In response, the Banana Republic raised fifteen defenses of common law, including frustration over purpose and impossibility, and counterclaimed breach of contract and common law theories on four count as it was eligible for various rental loans during the pandemic. The court granted the landlord’s motion to delete all affirmative defenses and counterclaims. The court ruled that the lease shared the risk between the parties and provided for a rent reduction in certain circumstances, “but not if for whatever reason the business could only be opened for sale through the fault of the landlord”. The court ordered that it would “not rewrite the contract of the parties for them” as there is a risk that
[Banana Republic] may not have been able to conduct its business due to a pandemic or it was foreseeable (and foreseen in the latter case) that the parties “would not have entered into a contract to terminate the lease or reduce the rent in such circumstances” here available.

Utah State Court

St. John Properties Utah, LLC v Grove Tower BoxOffice, et. al., No. 200400976 (Utah 4th Dist. Ct. Mar. 15, 2021) – The court gave a landlord a summary judgment on his right to unpaid rent for office space and declined to defend a tenant against impracticability and impossibility. The court found that the parties’ lease did not contain any force majeure clause and that no provision governed the allocation of risk. Due to the contractual relationship between the parties, the tenant effectively “risked an economic downturn during those ten years, regardless of whether the downturn was triggered by COVID-19 or some other event”. The court also found that the renter failed to provide evidence that the pandemic had “directly caused” its alleged losses, that the economic downturn was permanent, or that the renter was unable to fund their rental payments through a line of credit or insurance reclaim. You can find the statement here.

New York Federal Court

The Gap Inc. v Ponte Gadea New York LLC, No. 20 CV 4541-LTS-KHP, 2021 WL 861121 (SDNY March 8, 2021) – The federal court ruled the pandemic did not release The Gap from its rental obligations. The court gave the landlord a summary judgment, dismissing The Gap’s arguments that the closure of stores in connection with pandemics and changes in pedestrian traffic removed the exemption from his leasing obligations due to accident insurance, frustration of purpose, impossibility, neglect of the Consideration and mutual liability justified errors. The court found that The Gap could still offer some in-store shopping, roadside pickup and online order fulfillment, and found that The Gap “did not refer to any contract in the lease in which [the landlord]
has made all warranties regarding pedestrian traffic or the nature or demographics of the Lexington Avenue business area. “You can find the statement here.

The content of this article is intended to provide general guidance on the subject. A professional should be obtained about your particular circumstances.

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