Health and fitness clubs were heavily impacted by the government-mandated COVID-19 closures at the start of the pandemic in 2020. For LA Fitness and its parent company Fitness International, it equated to months of closed facilities that were generating no revenue but requiring monthly lease payments.
There was a great deal of conjecture about whether the “force majeure” provisions in leases would shield businesses that were required to close due to governmentally issued mandates from their payment obligations under their leases. These clauses typically relieve parties from the performance of some or all contractual obligations, and from the consequences of failing to perform those obligations, where performance is rendered effectively impossible by circumstances beyond their control. Many thought the COVID closure fit the bill for the application of such provisions to a tee, and litigation would surely ensue.
Lawsuits were indeed filed, and one of the first cases over this exact question to reach conclusion by a state appellate court was decided recently in favor of the landlord for an LA Fitness location in Bradenton. The state’s Second District Court of Appeal affirmed the lower court’s summary judgment ruling and found the health club would not be entitled to a refund of its lease payments made during the mandated closure period.
The company made all rent payments required under the lease during the lockdown, which was from March 17 to June 12, 2020, but it eventually filed suit in August 2021 seeking a refund of those payments. It primarily based its claims on the lease’s force majeure clause, arguing that it was excused from paying rent during the closure period, and it also relied upon the common law doctrines of frustration of purpose, impossibility of performance, and impracticability of performance.
In response, the landlord argued that the required closure did not preclude or restrict the tenant from performing its contractual obligation to pay rent, which it in fact paid. It also contended that the lease did not require the tenant to operate continuously, nor did it restrict the tenant’s permissible use solely to operating a health club. Therefore, it asserted that neither the force majeure clause nor the equitable doctrines of frustration, impossibility, or impracticability applied.
The trial court agreed, and it found that while the use of the premises “was limited by the COVID restrictions,” no evidence “suggest[ed] that [Landlord] precluded use of the premises or did anything to interfere with [Tenant’s] use of the premises.” It also found the landlord had not “failed to perform any ‘act’ required by the lease.”
Oscar R. Rivera is the managing shareholder of the Coral Gables-based law firm of Siegfried Rivera.
The court concluded that the force majeure clause did not apply to excuse the health club’s rent obligation, and the landlord was not in breach of the terms of its lease by refusing to abate the rent during the closure period.
In the subsequent appeal, the landlord advanced various arguments against the equitable doctrines, primarily maintaining that none apply if the relevant risk was foreseeable. It noted that the risk of government restrictions was foreseeable because the force majeure clause specifically mentions the risk of “restrictive laws.”
The tenant asserted that its rent obligation was excused during the closure period because the landlord was in breach of its contractual warranty that the tenant would have the right to operate a health club throughout the term of the lease.
The appellate panel unanimously disagreed, finding that the meaning of the language in question in the lease agreement only warranted that LA Fitness’s use of the premises as a health club would not violate any exclusive use rights that the landlord had granted or could grant to other tenants. The landlord never warranted that the tenant would have the right to operate a health club from the premises throughout the term.
As to the question of whether the closure constituted a covered event under the lease’s force majeure clause, the panel found that the government-mandated restrictions unquestionably were “restrictive laws.”
However, it rejected the tenant’s argument that the restrictions hindered or prevented it from performing its obligation to pay rent, which it had paid during the closure period, and found that the landlord had not agreed to forgive the tenant’s rent obligation if government-mandated restrictions prevented it from using the premises in a particular manner.
The panel concluded that it is “mindful of the hardships that Tenant and countless other businesses faced at the outset of the COVID-19 pandemic,” but neither the lease nor the equitable doctrines pled supported relief from the tenant’s payment obligations.
With this ruling, Florida businesses with similar lease provisions have been put on notice as to how the state’s courts are likely to view their arguments in analogous cases. The courts may sympathize with all the affected businesses and organizations, but they will rule in accordance with the applicable laws, contractual terms and legal doctrines, and they will be likely to find in favor of the landlords in similar cases.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
