The landlord in 35 East 75^th Street Corp. v. Christian Louboutin, LLC, Sup. Ct., N.Y. Co. Index No. 154883/2020 commenced a Supreme Court action against a commercial tenant for breach of a retail store lease due to the tenant’s failure to pay rent commencing March 1, 2020. The tenant asserted in defense of the action for rent frustration of purpose and impossibility of performance based upon COVID-19.  Justice Arlene P. Bluth of the Supreme Court, New York County rejected the tenant’s defenses, granted summary judgment to the landlord for unpaid rent in the sum of $1,680,454 plus interest and awarded the landlord legal fees.

In this commercial landlord-tenant case commenced in the Supreme Court, the tenant opposed landlord’s motion for summary judgment arguing that the ongoing pandemic implicated the frustration of purpose and impossibility doctrines. The key to the tenant’s argument was that its entire business was built on a highly visible and well trafficked retail location on the Upper East Side. Tenant argued that as a result of the pandemic, customer traffic had significantly decreased and the lack of customer traffic decimated the store’s revenues. Significantly, the lease contained a force majeure clause but the provision did not relieve tenant from its obligation to pay rent.

The Court granted the landlord’s motion seeking summary judgment on its complaint seeking unpaid rent holding that neither the doctrine of frustration of purpose, nor impossibility, were applicable.

The Court held that frustration of purpose was not applicable because the fact that tenant’s business model attracting street traffic is no longer profitable because of fewer people walking around due to the pandemic was irrelevant holding that “Unforeseen market forces, even the horrendous effects of a deadly virus, do not automatically permit the Court to simply rip up a contract signed by two sophisticated parties.”

The Court held the impossibility doctrine not applicable because the subject matter of the contract – namely the retail premises – is still intact and tenant is still permitted to sell its products. The Court held that the issue tenant faces, that it cannot sell enough of its product to pay its rent, is not an issue which implicates the impossibility doctrine.

The Court empathized with the tenant’s financial hardship but notably acknowledged the landlord’s financial challenges as well and reasoned that “permitting the doctrines of impossibility or frustration of purpose to rescind an otherwise valid lease would simply allocate the loss to the landlord. It is not [the] Court’s role to ignore a contract and decide sua sponte who should take the financial loss.”

Daniels Norelli Cecere & Tavel, PC anticipates the reasoning of this case to be followed by most courts on the issue of the defenses of frustration of purpose and impossibility due to the pandemic to the nonpayment of rent in a commercial lease. While it is expected that every tenant will seek to distinguish its facts so as to avoid the holding and rationale of this case, we anticipate that the courts will be hard-pressed to find significantly unique facts to do so. We will be following the cases closely and will keep you apprised of further significant developments.