Trial Court Rules That Covid-19 Pandemic Does Not Support A Basis To Assert the Doctrines of Frustration of Purpose or Impossibility

On December 3, 2020, the Hon. Arlene P. Bluth of the New York County Supreme Court addressed a defendant-tenant’s assertion of the frustration of purpose and impossibility defenses in opposing a plaintiff-landlord’s motion for summary judgment in 1140 Broadway LLC v. Bold Food, LLC. After considering briefs on these arcane doctrines of law, the trial court in 1140 Broadway LLC granted the landlord’s motion for summary judgment, and found the tenant liable for the outstanding rent.

Defendant-tenant, Bold Food, LLC (“Bold Food”) provides consulting and management services to restaurants. Like many other industries, Bold Food argued in opposition to the landlord’s motion for summary judgment that it was experiencing financial hardship due to COVID-19, and as such, it should be relieved from paying its rent. In essence, the tenant argued that due to COVID-19, performance of their rent obligations under the lease was frustrated and impossible insomuch as its business model could not strive in a world in which restaurants were limited in their ability to fully operate.

However, the trial court rejected the tenant’s arguments seeking relief based upon the doctrines of frustration of purpose and impossibility. In this regard, the trial court in 1140 Broadway explained that the doctrine of frustration of purpose requires that “the frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense (citing Crown IT Services, Inc. v. Koval-Olsen, 11 A.D.2d 263, 265 (1st Dep’t 2004)). Additionally, the trial court in 1140 Broadway further noted that “this doctrine [of frustration of purpose] is a narrow one which does not apply unless the frustration is substantial” (id.).

Similarly, the trial court in 1140 Broadway rejected the tenant’s assertion that the doctrine of impossibility served as a bar to pay rent. The trial court noted that the doctrine of impossibility was inapplicable insomuch as Bold Food’s obligation to pay rent under the lease was not rendered impossible through the physical destruction of the subject matter of the contract (i.e., the demised premises). The court further reasoned that, “the impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against in the contract” (quoting Kel Kim Corp. v. Cent. Markets, Inc., 70 N.Y.2d 900, 902 (1987)).

In sum, the trial court in 1140 Broadway determined that the government mandated orders regarding public health in the aftermath of COVID-19 did not affect either parties’ ability to perform their respective obligations under the lease. As such, although COVID-19 adversely affected Bold Foods business, the trial court ruled that it did not relieve the commercial tenant of its obligation to pay rent.