Residential Apartments
“Regarding residential lease contracts, our position is that under the current legislative provisions, residential lease agreements have not been breached in a manner that justifies granting tenants an exemption from paying rent. The law does not recognize partial prevention or partial frustration, and therefore, so long as the tenants continue to derive benefit from the leased property for residential purposes — even if in certain cases this is a partial benefit — there is no justification for granting a full or partial exemption from the payment of rent. With all due understanding, a difficult economic situation in itself is not grounds for altering the terms of a contract or for recognizing its frustration. Such recognition is liable to seriously harm commercial and economic certainty, its effects could be severe, and there is no basis for it in law.
Leases for Businesses
“Regarding lease contracts for businesses that the emergency legislation ordered to be completely shut down owing to the nature of their activity (such as event halls and gyms), or because they are located in lockdown areas, our position is that the ability of these tenants to use the leased property is fully frustrated, albeit temporarily. In our opinion, in light of the law and case law, the legal prevention of using the leased property or its access routes — even in the absence of fault on the part of the landlord — gives rise, for business owners of this kind, to the right to exempt themselves from paying rent temporarily until the prevention is removed. As for lease contracts for businesses whose activity was not shut down by the emergency legislation, but whose ability to employ workers was significantly reduced, to as little as 15%, our position is that under the frustration doctrine, which requires absolute prevention of the use of the property, the present case does not fall under the frustration doctrine, but it is a clear case in which there is room to adapt the contract by virtue of the duty of good faith in the performance of a contract. Here, the main possibility of using the property is neutralized by virtue of a legal obligation, and the purpose of its use is fundamentally altered, but the tenants continue to hold the leased property and rely on it in order to operate their business “remotely.” Accordingly, our recommendation is that during the emergency period the tenants bear 50% of the rent and management fees, without this being considered a breach of contract. As for lease contracts for ‘essential’ businesses that the emergency legislation does not prohibit from operating and for which other provisions allow them to employ workers, as well as lease contracts for businesses whose activity is not primarily based on human capital (such as factories and warehouses), our position is that these lease agreements have not been breached, and there is no justification for exempting the aforementioned business owners from paying rent. In our view, the frustration doctrine does not apply with respect to these lease agreements, and there is, ostensibly, no justification for adapting them to the changing circumstances by virtue of the duty of good faith either, since the material obligations of the parties to the contract were not affected in this respect by the COVID-19 pandemic.
