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A recent decision by the Superior Court of New Jersey’s Appellate Division demonstrates how strictly courts will construe lease provisions, even in the face of a pandemic and a strict executive order directly affecting the subject of the lease.
In that case, Washington-Hudson Assocs. II v. Town Sports Int’l Holdings, 2023 N.J. Super. Unpub. LEXIS 517, TSI Hoboken leased part of a Property in Hoboken in 1997 to operate a fitness center. Pursuant to the lease, no rent reduction would be given for any loss of business to the tenant caused by any future laws or any other causes beyond the landlord’s control. This became a problem in March 2020 when, due to the Covid-19 pandemic, Governor Murphy issued an executive order temporarily shutting down all New Jersey fitness centers. This prompted TSI to stop paying rent and eventually file for bankruptcy. After TSI rejected the lease in its bankruptcy proceeding, the landlord sued for the unpaid rent.
TSI argued that 1) it should have been excused from paying rent due to the Covid-19 pandemic and its attendant executive orders, and 2) the landlord did not attempt to mitigate its damages by re-renting the lease space to another tenant, as was required once TSI breached the lease.
The court rejected TSI’s Covid-19 breach of the lease defense. The court noted that the lease was clear and unambiguous in providing that there would be “no abatement, diminution or reduction” in rent for “any inconvenience, interruption, cessation or loss of business” caused “directly or indirectly” by government orders “or by any other cause or causes beyond the control of” the landlord. As the Covid-19 pandemic and Governor Murphy’s executive orders clearly fit within the ambit of that lease provision, the court held that TSI was precluded from claiming that Covid-19 or the executive orders excused the obligation to pay rent.
With respect to the mitigation issue, the court remanded the case, finding that TSI was entitled to reasonable discovery before the court could determine whether the landlord could have re-rented the lease space in the middle of pandemic, and before vaccines were available.
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