Applying New York law, the Second Circuit held that a business tenant was not excused from paying rent because of business closure order from the Governor of New York to protect the public from exposure to Covid-19 at the height of the pandemic crisis. In re NTS W. USA Corp., 2022 U.S. App. LEXIS 28811, 2022 WL 10224963 (2d Cir. 2022).
The court refused to apply the defensive doctrines of “frustration of purpose” or “impossibility.” The court found that the frustration of purpose doctrine applies only when a catastrophic event renders the lease valueless to one of the parties. Impossibility arises when the inability to perform comes from an unanticipated event. In this case, the express terms of the business lease stated that the tenant had a duty to pay rent even if a condition arose if that condition was not in the landlord’s control. The leas also required payment even if the tenant could not use the property because of a “natural occurrence” or “changes in law.”
In effect, the court applied N.Y. precedents that held that the parties can bargain around the doctrines of impossibility and frustration of purpose and that is what happened here. Those defenses were not mandatory ones but default rules that could be disclaimed.
It is not clear that the same result would have obtained if this had been a residential lease. It would seem unfair to require a residential tenant to keep paying rent if the building burned down, even if the lease provided otherwise.
But the moral of the case suggest tenants need to read their leases carefully…