A Michigan federal judge recently ruled that an ancient common law doctrine called “frustration of purpose” gives a retail tenant a defense to paying rent for the period the tenant was shut down due to the state’s COVID-19-related public health orders.
In Bay City Realty, LLC v. Mattress Firm, Inc., a retail tenant in the business of selling mattresses and other bedding products argued that as a result of Michigan’s stay at home orders issued to slow the spread of COVID-19, it could avoid paying rent during the duration of the shutdown because the purpose of its lease ─ providing a showroom to sell mattresses to the public in person ─ was “frustrated.”
After painstakingly parsing the terms of the operable lease, the court agreed, concluding:
- The lease did not prohibit the tenant from asserting common law defenses such as “frustration of purpose.”
- The purpose of the lease, to sell bedding products (as opposed to warehousing products for sale over the internet), was frustrated by the shutdown orders which prohibited the tenant from operating its business.
- The pandemic and shutdowns were unforeseeable and not caused by any action of the tenant.
- Neither the tenant nor the landlord had assumed the risk of the shutdown under the lease.
- The “frustration of purpose” merely suspended Mattress Firm’s requirement to pay rent, but did not terminate the lease entirely.
As the Mattress Firm ruling demonstrates, whether “frustration of purpose” or other common law defenses may be available is heavily dependent on the facts of each case, in particular the language of the operable lease, and the applicable law.
If you have any questions regarding how the Mattress Firm case or COVID-19 may impact your rights as a tenant or a landlord, please contact Christian Meyer, Jarrod Trombley or your Warner real estate attorney.
