Frustration of Purpose and Impossibility Defenses to Commercial Lease Payments Rejected by NY State Courts

Title:
Frustration of Purpose and Impossibility Defenses to Commercial Lease Payments Rejected by NY State Courts
Publication:
Real Estate Client Alert January 6, 2021
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Last month, a New York State trial court rejected—in two separate cases--frustration of purpose and impossibility defenses raised by commercial tenants for non-payment of rent under commercial lease agreements due to the pandemic. In 35 E. 75th St. Corp. v Christian Louboutin L.L.C., 2020 N.Y. Slip Op 34063(U) (N.Y. Sup. Ct. Dec. 9, 2020), the commercial tenant, Christian Louboutin, a high-end fashion design company, stopped paying rent under a lease agreement for its Upper East Side store in March 2020. Louboutin claimed, among other things, that it was “absolved” of its obligations to pay rent under the lease because, when it signed the lease in 2013, neither party contemplated that a pandemic would lock down the country and significantly reduce visitors to its “highly visible and well trafficked [Upper East Side] retail location.” The landlord sued. Louboutin counterclaimed for, among other things, termination of the lease and rent abatement due to frustration of purpose and impossibility. The trial court granted landlord’s motion for summary judgment and awarded landlord back-rent and legal fees. The court held, in sum, that the frustration of purpose doctrine was not applicable—the reduction of foot traffic to the Louboutin store, due to an unforeseen economic force, does not permit a court to “simply rip up a contract signed between two sophisticated parties.” Likewise, the court held that the impossibility defense is not applicable as the store is “still intact” and Louboutin is still “permitted to sell its products.” Lastly, the force majeure provision contained in the lease agreement was specific and did not call for the parties to simply walk away from the contract.

In 1140 Broadway LLC v Bold Food, LLC, 2020 N.Y. Slip. Op. 340178(U) (N.Y. Sup. Ct. Dec. 3, 2020), the court similarly rejected a commercial tenant’s impossibility and frustration of purpose defenses in a suit over non-payment of rent due to the pandemic. The commercial tenant, Bold Food, a restaurant management and consulting organization, leased a portion of the landlord’s building in New York City as office space. The tenant stopped paying rent in February 2020 and vacated the premises five months later. The tenant similarly argued, in defense, that performing under the contract was impossible and therefore any default was excusable under the frustration of purpose doctrine. The court, as in 35 E. 75th St. Corp. v Christian Louboutin L.L.C., held that such defenses do not apply. The fact that the industry served by the tenant (i.e., the restaurant industry) experienced a precipitous downfall that affected tenant’s ability to pay the rent did not excuse tenant’s performance under the lease agreement. 

If you have questions about this Alert, please contact Nicholas Racioppi, Jr., Joshua M. Greenfield, James M. Maggio, Jr., or Anthony K. Lombardo.