Fitness International v. KB Salt Lake III: California Court Rejects Tenant’s Covid Defense as an Excuse for Unpaid Rent

In a September 2023 decision, the California Court of Appeals affirmed a judgment in favor of a commercial landlord who prevailed on summary judgment in an unlawful detainer action against a tenant fitness center that stopped paying rent during COVID-19 closure orders. The Second Appellate District ruled in Fitness International, LLC v. KB Salt Lake III, LLC that the tenant could not establish defenses based on doctrines like force majeure, frustration of purpose, and impossibility. 

The court underscored that the closure orders did not prohibit commercial construction or prevent the tenant from paying rent. Further, the tenant remained in possession of the premises. The Fitness International decision demonstrates the courts’ reluctance to accept COVID-19 as broadly excusing a commercial tenant’s obligation to pay rent.

Background

The dispute arose from a 2016 amended lease between KB Salt Lake III, LLC (“KB Salt Lake”), the landlord, and Fitness International, LLC (“Fitness International”), which operated an indoor gym and fitness center in Chatsworth, California. The lease required Fitness International to renovate and expand the existing gym. In November 2019, Fitness International commenced renovations that were estimated to take approximately eight months to complete.

In March 2020, COVID-19 closure orders issued by the City and County of Los Angeles shut down indoor gyms and fitness centers but allowed commercial construction to continue. Fitness International nevertheless ceased construction at the Chatsworth location, invoked the lease’s force majeure clause, and stopped paying rent starting in April 2020. The former gym space remained unfinished and could not reopen.

In October 2021, after Fitness International failed to pay over $200,000 in back rent, KB Salt Lake brought an unlawful detainer action. Fitness International asserted defenses based on the closure orders. The trial court rejected Fitness International’s defenses and granted KB Salt Lake’s summary judgment motion.

On appeal, the Court of Appeal affirmed. The court explained that the plain language of the closure orders unambiguously exempted commercial construction. Though Fitness International claimed it reasonably believed “retail” construction was prohibited, the court reiterated that interpreting ordinances and regulations is strictly a legal question. The court then methodically rejected each of Fitness International’s defenses stemming from its flawed premise.

Regarding the lease’s force majeure clause, the court held it only excused an obligation where the triggering event hindered or prevented the performance of a specific required act. Though COVID-19 qualified as a force majeure event, Fitness International failed to show it hindered or prevented Fitness International from paying rent.

The court also concluded the doctrine of frustration of purpose did not apply because Fitness International did not attempt to terminate the lease and remained in possession of the premises. Further, temporary impossibility or impracticability requires an obligation to be rendered highly impractical due to excessive, unreasonable cost. Fitness International failed to produce evidence that paying rent during closure orders met this demanding standard.

By upholding summary judgment for the landlord, the Fitness International decision underscores that courts will narrowly construe doctrines like force majeure and will require significant evidence before relieving a commercial tenant of its rent obligations based on circumstances like temporary COVID-19 restrictions. The court made clear that closure orders neither prohibited construction nor prevented entities with the ability to pay from doing so. 

Key Takeaways

• This case provides guidance on defenses for nonpayment of rent during COVID-19, limiting the applicability of various legal doctrines. It underscores tenant obligations to pay rent if the ability exists and possession continues.
• The case involves a commercial landlord’s unlawful detainer action against a tenant fitness center for nonpayment of rent during COVID-19 closure orders.
• The court held that COVID-19 closure orders did not prevent commercial construction, so they did not excuse the tenant’s failure to pay rent under force majeure, frustration of purpose, and impossibility/impracticability doctrines.
• The closure orders exempted commercial construction, and the tenant admitted it had funds to pay rent, so it was not delayed, hindered, or prevented from paying rent by closure orders.
• Doctrines like the frustration of purpose end a contract, but the tenant remained in possession, so they still had to pay rent. Impossibility requires performance to be impossible or highly impractical, which was not shown.
• COVID-19 did not broadly excuse commercial tenants from paying rent under various legal doctrines where tenants had the ability to pay, and occupancy continued. Force majeure clauses are interpreted narrowly.

Summary

The Fitness International decision makes clear that COVID-19 closure orders did not provide commercial tenants with a broad excuse for nonpayment of rent under legal doctrines like force majeure and impossibility. The court underscored that public health restrictions neither prohibited commercial construction nor prevented financially capable tenants from paying rent. Further, by remaining in possession, the tenant could not assert frustration of purpose. The ruling puts tenants on notice that they face a heavy burden when invoking COVID-19 to avoid clear rent obligations and that courts will narrowly construe such virus-related defenses absent evidence of a tangible impact on the duty to pay.