The fallout from the COVID-19 pandemic is winding down. However, the Colorado Court of Appeals recently issued a blow to tenants attempting to use the pandemic and associated government shut-down orders to evade payment obligations to landlords. The key for both landlords and tenants is allocation of risk in the lease.
The pandemic and associated government shut-down orders hit both landlords and tenants hard. Landlords needed tenants to pay rent and other charges so they could pay their mortgages. Many tenants were shut down for a period of time, most suffered financial losses, and payment of rent became a challenge. Often, landlords who pressed their tenants for payment were met with resistance. Many tenants claimed that the pandemic and government orders were unforeseen circumstances that frustrated the purpose of the lease or made its performance impossible. Indeed, courts across the nation grappled with the issue and some tenants continue to use those defenses to this day.
In an opinion issued on January 19, 2023, the Colorado Court of Appeals, in Highland Broadway v. Barre Boss, LLC, ruled that the tenant could not evade its duty to pay rent because the lease allocated risk of unforeseen circumstances. The lease contained a force majeure clause which provided that acts of God, restrictive government action, and the like did not excuse the tenant from paying rent. While the tenant argued that governmental orders during the pandemic made performance of the lease “illegal,” the court did not bite. The court found that, in the force majeure clause, the tenant agreed to pay rent despite the unforeseen circumstances resulting from the pandemic. The court further noted the governmental orders did not make it illegal for the tenant to pay rent.
The takeaway for both landlords and tenants is to ensure that the parties have allocated the risk of unforeseeable circumstances in the lease. In Colorado, and many other states, the courts will enforce that allocation of risk as written in the lease.
The business and real estate attorneys at Moye White can help both landlords and tenants navigate these circumstances. For more information contact your Moye White attorney.
David A. Laird is a commercial litigation attorney representing clients in complex commercial disputes including real estate, landlord/tenant issues, and lending disputes. David can be reached at 303-292-7946 and firstname.lastname@example.org.
What is written here is for general informational purposes only and does not constitute legal advice. Readers of this website should contact their attorney to obtain advice with respect to any particular legal matter.