Defense Wins! - Winter 2021
Monday, February 8, 2021
Section: Winter 2021

There can be no doubt that the COVID-19 pandemic has affected property owners and their tenants in Washington.  The issue that many, if not all, of our landlord clients will be facing soon—if not now—is the legal consequences of the pandemic, and who should bear them, in a breach-of-contract dispute over rent.

One of Carney Badley Spellman’s recent landlord clients faced precisely that issue.  Their client leased a commercial premises to a tenant to operate a restaurant in south King County.  The lease contained a force-majeure clause:  “[I]f Landlord or Tenant is delayed in, or prevented from observing or performing any of its obligations hereunder (other than the payment of any amount of money due hereunder) as the result of:  (a) an act or omission of the other party; or (b) any other cause that is not within the control of the delayed or prevented party (including, without limitation, inclement weather, the unavailability of materials, equipment, services or labor, and utility or energy shortages or acts or omissions of public utility providers or governmental agencies); then:  (i) such observation or performance shall be excused for the period of the delay; and (ii) any deadlines for observation or performance shall be extended for the same period.”

Soon after Governor Inslee issued the March 2020 executive order curtailing the operations of restaurants across Washington, the restaurant tenant—instead of offering take-out and delivery services as permitted by the order—chose to close shop.  Carney’s landlord client sued for all unpaid rent, and the tenant asserted commercial frustration of purpose as an affirmative defense.

A King County Superior Court judge initially rejected the landlord’s argument that the tenant’s frustration defense fails as a matter of law because the lease, through the force-majeure clause, allocated the risk of frustration to the tenant. Scott v. Petett, 63 Wn. App. 50, 60, 816 P.2d 1229 (1991) (concluding that commercial frustration fails if the contract allocates the risk); RESTATEMENT (SECOND) OF CONTRACTS § 265 (1981).

But last week, on behalf of their landlord client, Scott Weaver, Michael King, and Rory Cosgrove of Carney Badley Spellman, P.S., persuaded the trial judge to grant their client’s motion for reconsideration and to enter a partial summary judgment in their client’s favor.  The judge concluded that the tenant’s affirmative defense was barred under Washington law because the parties allocated the risk in their contract that the tenant must still pay rent when acts by a government agency frustrated its business.  In so concluding, the judge found that (1) the restaurant was partially and periodically shutdown by Governor Inslee’s orders; (2) Governor Inslee’s actions and the enforcement of his orders were acts by a government agency; and (3) such acts were specifically contemplated by the parties in the plain language of their force-majeure clause.  And as the Carney team pointed out to the judge, the emerging pandemic-related case law on force-majeure clauses and commercial frustration is trending strongly in property owners’ favor.

If you have a landlord client facing a similar situation, look first to see if the lease allocated the risk of frustration to the tenant.  If so, then there is a strong possibility that your landlord client may be able to secure a quick summary-judgment dismissal of any frustration defense.  This is to avoid having to wade into the merits of the squishy frustration defense, which has been viewed as having a “liberal application” in Washington.