In Cedarbrook Plaza v. Schwartz, 2024 Pa, Super. 154, ___ A.3d ___, 2024 WL 3504636 (July 23, 2024), the Pennsylvania Superior Court addressed the issue whether a government mandated shut down of face-to-face businesses frustrated the purpose of a commercial retail lease.
Cedarbrook Plaza is an enclosed regional mall located across a road from the City of Philadelphia. In September, 2019, Schwartz, an insurance agent, entered into a one-year lease for a store front in the mall from which to run his insurance agency business. Approximately six months later, the COVID pandemic struck, and in response, the governor of Pennsylvania mandated the closure of all non-essential businesses for an indefinite period. The mandate lasted for two and a half months.
Although Schwartz paid his monthly rent and utility charges through February, 2020, he did not pay any rent for March, or for the balance of the lease term, even though four months remained after the mandate had been rescinded.
Cedarbrook sued Schwartz for unpaid rent, utilities and attorney fees. Schwartz asserted in defense that the government mandated closure of his business frustrated the purpose of the lease, thus relieving him of the obligation to pay rent..
Apparently on cross motions for summary judgment, the court found for Cedarbrook except for the period of the closure, but found for the tenant as to attorney fees and utilities, but nevertheless entered judgment in favor of the landlord, Cedarbrook, for the full amount that it had claimed. Schwartz appealed.
Relying on its earlier decision in 9795 Perry Highway Mgmt., LLC v. Bernard, 273 A.3d 1098 (Pa. Super.), appeal denied, 280 A.3d 888 (Pa. 2022), the court repeated the three elements that had to be shown to establish the defense of frustration of purpose: (1) the purpose that was frustrated must be the principal reason why the party asserting the defense entered into the contract, (2), the frustration must be substantial, and (3) the non-occurrence of the frustrating event must have been a basic assumption on which the contract was made.
As to the first element, the court found that the because the tenant abandoned the premises 13 days before the mandate became effective and did not resume his business for the four remaining months after it had been lifted, the purpose of the lease had not been frustrated.
Regarding the second element, the court found that the 77-day period of mandated closure was not substantial, as it only caused Schwartz’s business to be less profitable, since he could have continued it on-line, and could have reopened but chose not to do so.
The court also found for the landlord on the third point, holding that the parties did anticipate and provide for a government mandated closure by including a force majeure clause, and in so doing, specifically agreed that such a closure would not relieve the tenant of his obligation to pay rent.
Accordingly, the judgment of the court of common pleas was affirmed.
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