The Law

No COVID rent refund due
by Sara Palmer

In April 2021, Fitness International LLC filed a complaint against City Center Ventures LLC in Hennepin County District Court. Fitness sued City Center in order to recover rent paid during the mandatory closure periods of non‑essential businesses to slow the spread of Covid. The main argument Fitness put forward was the frustration of purpose excuses its obligation to pay rent during the closure periods.

The district court judged in favor of City Center, coming to the conclusion that Fitness was not exempt from paying rent during the mandatory closures. Both the Minnesota Court of Appeals affirmed the district court’s ruling, “noting that Fitness cited no binding authority allowing the doctrine of frustration of purpose to establish a breach‑of‑contract claim.” The Minnesota Supreme Court also held firm to the district court’s ruling. The Supreme Court noted that Fitness was not forgiven of any rent due during the closure periods, but rather rent was suspended during the frustration.

Fitness International entered into a lease agreement with City Center Ventures in 2007. The section of the lease agreement that pertains to this case is Article XXII which states how unforeseeable circumstances prevent either party from fulfilling the contract will be handled. The contract states:

If either party is delayed or hindered in or prevented from the performance of any act required hereunder because of restricted laws performance of such act shall be excused for the period of the delay caused by the Force Majeure Event and the period for the performance of such act shall be extended for an equivalent period. Delays or failures to perform resulting from lack of funds or which can be cured by the payment of money shall not be Force Majeure Events.

When Fitness closed its doors in late March 2020, it ceased collecting membership fees, but never made any argument during the case that paying the rent caused any sort of financial distress. The fact that Fitness paid rent on top of the late fees after it ceased to pay rent for the months of April, May and June of 2020 shows that there was no significant financial loss. Therefore, there was no substantial reasoning that City Center should return the rent paid for the time period of the mandatory closures. Perhaps the only monetary value that should have been returned was the late fees - but as Fitness International never made that specific argument it clearly was under no financial burden.

(Fitness International, LLC v. City Center Ventures, LLC (Supreme Court of the state of Minnesota, Docket: A22-1057))

Decision: July 2024
Published: August 2024

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