Frustration of purpose and temporary closure

| Oct 21, 2020 | Real Estate |

During temporary government-mandated closures of businesses, the tenant of a commercial lease may find it difficult or impossible to make the payments. Does the law provide any protection from eviction for tenants for nonpayment of their leases under these circumstances?

According to The National Law Review, a commercial tenant in California may argue that the doctrine of frustration of purpose applies.

Elements of the defense

The tenant’s situation must meet certain criteria. First, he or she must prove that performance is impossible. Second, there must be evidence that an unforeseeable situation has frustrated the primary reason for the contract. The tenant must also prove that the situation has substantially destroyed the value of performance.

For example, the primary purpose of the contract is to allow the tenant to sell goods and services from the location, and the mandated closure makes it impossible. Because mandated closure is rare, the tenant may be able to successfully argue that it is unforeseeable. There is no value to the lease while the mandate is in effect. Thus, the courts may determine that the tenant should receive a release from the fulfillment of the lease terms, i.e., paying the rent.

Factors for consideration

Courts tend to be hesitant to apply the frustration of purpose doctrine because in general, commercial leases imply that the tenant is taking over most of the risks of owning the building throughout the timeframe of the lease. However, the courts may determine in some cases that the temporary hardship warrants temporary relief from performance and require the tenant to resume payment as soon as the government lifts the mandate.

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