Arizona Court of Appeals, Division One, holds that state-mandated closures due to COVID-19 did not excuse a commercial tenant’s obligation to pay rent.

The tenant operated fitness centers in Arizona and leased the premises from the landlord under long-term commercial contracts. Over a roughly one-year period between 2020 and 2021, the premises either had to be closed or operate under limited capacity due to COVID-19 restrictions mandated by the state. The tenant refused to pay rent during part of that period. The landlord sued to recover. The trial court granted summary judgment to the landlord.

The Court of Appeals affirmed. There was no factual dispute as to the non-payment. The tenant raised three affirmative defenses: force majeure, frustration of purpose, and impracticability. The tenant also argued that the landlord had breached the covenant of quiet enjoyment.

The Court of Appeals rejected the force majeure defense, citing the following sentence from the leases: “Delays or failures to perform resulting from lack of funds or which can be cured by the payment of money shall not be Force Majeure Events.”  The court read this provision to mean that payment obligations were not excused due to force majeure, because the physical act of payment could still be made. The court rejected the tenant’s argument that the provision merely meant an obligor’s financial distress was not force majeure.

The Court of Appeals also rejected the tenant’s frustration of purpose defense. The court concluded the tenant had waived a temporary frustration of purpose defense that would have applied to the months of non-payment. The court also concluded the tenant could not make a complete frustration of purpose defense as to the entire contract, because it was a long-term contract. The court also said the above-quoted sentence regarding force majeure meant the tenant had assumed the risk, precluding frustration of purpose defenses.

Next, the court held that performance was not impracticable, because payment could physically be made, and the tenant had not shown financial burden.

Finally, the court rejected the tenant’s argument that the landlord had breached the covenant of quiet enjoyment, because the COVID-19 restrictions were not imposed by the landlord or someone acting on the landlord’s behalf, nor by someone claiming paramount title.

Judge Thumma authored the opinion, which Judges Gass and Bailey joined.

Posted by: Garo Moughalian