The COVID-19 pandemic was declared over in May of 2023, but its effects are still being felt – not only by some unfortunate individuals, but also in our court system, as litigants battle over the economic impact of the disease and of government efforts to control it.

An example is a case recently brought before the California Court of Appeal, which was asked to decide if government-mandated shutdowns triggered the “force majeure” clause of a commercial lease (Fitness International v KB Salt Lake.)

Fitness International, which operates gyms and fitness centers under the LA Fitness brand, signed a lease in 2016 with KB Salt Lake III, LLC, for a property in Chatsworth.

The lease required Fitness International to renovate the gym, with work to begin after a building permit was issued and to “proceed with due diligence thereafter.”

The lease included a force majeure provision, a French term referring to uncontrollable events that are not the fault of any party to an agreement and that make it difficult or impossible to carry out normal business activities.

The force majeure clause in the lease listed a variety of possible events, such as strikes, lockout, the inability to procure labor or materials, restrictive laws, riots, war, fire, inclement weather, and other causes.

Fitness International began renovating the gym in November of 2019. The project was estimated to take eight months.

In March of 2020, the COVID-19 outbreak caused California’s governor to declare a state of emergency. It required residents to stay at home as much as possible, and among other measures ordered the immediate closure of gyms and fitness centers.

Californians were allowed to leave their homes to engage in certain activities, including to “perform any work necessary to the operations, maintenance, and manufacturing of essential infrastructure, including without limitation construction of commercial and institutional buildings.”

On March 20, 2020, Fitness International notified KB Salt Lake that in its view the COVID-19 mandates constituted a force majeure event that prevented it from performing construction activity on the Chatsworth gym. It stopped paying rent in April of 2020 and never resumed.

In September of 2021, KB Salt Lake sent Fitness International a notice that it would be in default of the lease unless it paid the delinquent rent (then almost $337,000) within 10 days.

After several additional notices, KB Salt Lake served Fitness International with an unlawful detainer action, essentially demanding that it vacate the premises. The landlord also asked the Los Angeles Superior Court to issue a summary judgment, meaning to issue its verdict on the eviction order without holding a trial.

KB Salt Lake rejected Fitness International’s force majeure claim. It noted that the lease stated specifically that “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.”

The only breach alleged in the unlawful detainer action was failure to pay rent, it said, which Fitness International could cure by making a payment of money.

The COVID-19 restrictions did not prevent Fitness International from continuing renovations on the gym, or using the property for other purposes, KB Salt Lake said, and the obligation to pay rent continued so long as the tenant occupied the property.

Fitness International argued that the closure orders made it “illegal” for it to continue renovating the gym.

It acknowledged that the restrictions exempted construction workers and commercial construction from the stay-at-home orders. But, while “construction of … commercial, office and institutional buildings” was allowed, it argued, the exemption did not specifically allow “retail construction,” which is what it said the gym renovation constituted.

It contended that it had to cease all construction-related activities to protect its employees and avoid violating state law.

Fitness International did not claim that it was unable to pay the rent because of financial inability. It said its obligation to pay was dependent on its right to complete construction and use the building for its intended purpose. Because it was prevented from doing so, it was “excused from paying rent.”

The trial court determined that KB Salt Lake had established every element of its unlawful detainer cause of action, and granted the motion for summary judgment.

It noted that Fitness International admitted it had the funds to pay the rent and did not submit any evidence showing that the pandemic restrictions prevented it from paying.

The closure restrictions did not prevent Fitness International from using the premises as a gym, the trial judge said; there was no gym to operate because Fitness International had chosen to stop construction.

Fitness International then appealed.

Fitness International’s attempt to differentiate “retail construction” from “commercial construction” was not supported by state closure orders, the appellate justices said, and was simply a “fanciful attempt at excusing its decision to cease construction.”

The closure orders permitted work to continue on “essential infrastructure” projects, including “without limitation construction of commercial, office and institutional buildings.”

Fitness International argued that its ability to pay rent was “hindered” because it could not bill its customers when the gym was closed. But it admitted that it did not have a cash flow problem and had the funds to pay rent, the justices noted. The lease obliged Fitness International to pay rent for the 10 months the renovations were scheduled to take, and the company had submitted no evidence that paying rent for six or seven more months would have been an “excessive and unreasonable cost.”

The appellate justices affirmed the lower court’s ruling and awarded KB Salt Lake its costs on appeal.

By Laurie Murphy