On 5 March 2020, the Governor of Maryland issued an executive order requiring that pubs and restaurants close by 5pm. Such businesses were permitted to sell their products for carry-out, drive-through, or delivery if they complied with the social distancing measures in force at that time.
In April 2020, the tenant of a brewery asked its commercial landlord to abate the April rent in light of the covid-19 health emergency and its ensuing inability to operate the brewery as usual. Since the parties did not reach an agreement on this point, their dispute ended up in court.
On 20 September 2021, the trial court ruled in favor of the tenant, holding that “the Governor’s executive orders had made the sole purpose of the parties’ lease an illegal activity, frustrating this purpose in a legal sense”. The landlord then filed an appeal asking the Appellate Court of Maryland to review the trial court findings on the applicability of the doctrine of frustration of purpose and legal impossibility.
By judgment of 3 January 2023, the Appellate Court upheld the appeal filed by the landlord. Contrary to the landlord’s position, it acknowledged that the level of disruption caused by the COVID-19 pandemic was not reasonably foreseeable at the time of signing the contract. However, it highlighted that the pandemic had not rendered the sole purpose of the lease illegal. Namely, after having recalled the out-of-state and federal case-law on the matter, the Court stressed that in order to determine whether the pandemic and related restrictive measures had the effect of frustrating the purpose of a commercial lease, it was essential to focus on what was expressly permitted by the terms of the contract in issue in each particular case. Since the lease at hand did not prohibit takeout dining, and considering that throughout the entirety of the relevant time period carry-out and delivery service continued to be permitted in the State of Maryland, the tenant could not claim that the pandemic had frustrated the purpose of the lease (If the lease had implied that all related business activities were to be carried out within the brewery premises, the dispute would have had a different outcome). Accordingly, the Court reversed the first-instance decision.
Reference: Critzos, II v. Marquis, Appellate Court of Maryland (is the highest court in the state, commonly called the Supreme Court in other states), 3 January 2023.
