In 1600 Walnut Corporation v. Cole Haan Company Store, the United States District Court for the Eastern District of Pennsylvania recently determined that well-drafted lease language can easily defeat a commercial tenant’s argument that it does not have to pay rent because of the COVID-19 pandemic.
There, Cole Haan (a well-known shoe company), permanently vacated its store in Philadelphia and stopped paying rent in March of 2020. Cole Haan contended that since the pandemic (which is ongoing), and the Governor’s March 23, 2020 executive order requiring certain businesses to close (until it was lifted on June 5, 2020), prohibited it from operating, it was entitled to abandon the lease and should not have to pay rent. Cole Haan asserted various legal doctrines, including impossibility of performance, impracticability of performance/frustration of purpose, and failure of consideration in support of its position.
However, the Court held that a clause in the lease between the parties, called a “force majeure” provision, applied to the situation. That provision stated:
“If either party is delayed, hindered or prevented from the performance of an obligation because of strikes, lockouts, labor troubles, the inability to procure materials, power failure, restrictive governmental laws or regulations, riots, insurrection, war or another reason not the fault of or beyond the reasonable control of the party delayed (collectively, “Force Majeure”), then performance of the act shall be excused for the period of the delay; provided, however, the foregoing shall not: (A) relieve Tenant from the obligation to pay Rent, except to the extent Force Majeure delays the Commencement Date; and (B) be applicable to delays resulting from the inability of a party to obtain financing or to proceed with its obligations under this Lease because of a lack of funds.”
(Emphasis added by the Court).
The Court then held that the pandemic and the Governor’s executive order were both force majeure events as defined by the lease. Since the force majeure clause applied, the Court applied its clear language to the facts of the case and determined that Cole Haan was not relieved from paying rent by the pandemic or the Governor’s executive order.
This case shows that a well-drafted commercial lease is crucial to protecting the interests of both landlords and tenants, especially in uncertain times. However, like most complex contracts, commercials leases can and should be negotiated by an experienced attorney.