Heather Willard / NewsBreak Denver / Jan. 23, 2023
(Highlands Ranch, Colo.) A trio of Colorado Court of Appeals judges ruled on Jan. 19 that commercial tenants who broke leases due to government-issued shutdown orders must pay up.
The lawsuit was filed in April 2021 by the owners of a fitness center in Highlands Ranch, Barre Boss, against the property management company, Highlands Broadway Opco.
Barre Boss’s owners, Suzanne, Vanessa and Daniel Dipentino, argued the business could not open under Gov. Jared Polis’ orders and should not be obligated to pay rent.
The lawsuit argued it was “illegal” to operate a fitness center under COVID shutdown rules, and the pandemic was an “act of God” the tenants could not have foreseen. They also alleged the landlord failed to mitigate the shutdown’s damage to the fitness company.
“Specifically, tenant and the guarantors of its lease obligations (...) argue that they are not liable to the tenant’s landlord (...) because the COVID-19 pandemic and the executive order were unanticipated events that made it illegal, and thus impossible, for the business to operate,” the appeal court judgment summarized.
The business initially closed due to the March 25, 2020, executive order issued by Gov. Polis to close all non-critical businesses.
Barre Boss’s owners requested rent relief from the landlord due to the forced closure and were given a deferment for the April and May 2020 payments. The agreement required Barre Boss to pay the two months of rent in installments from September 2020 through August 2021.
According to the appeals court decision, Barre Boss management signed the written agreement that allowed the fitness center to stop operations but required it to pay rent.
The tenants continued to pay rent through November 2020, the lawsuit states and informed the landlord in December 2020 that it was immediately surrendering the premises after seeking another entity to take over the lease and exhausting funds from an Economic Injury Disaster Loan.
The appeals court judges ruled that COVID-19 was included under the force majeure clause included in the lease agreement, which in the lease between Barre Boss and Highlands Broadway Opco allocated all economic risks to the tenant, notwithstanding “acts of God … restrictive governmental regulations(,) or … other cause without fault and beyond control of the party obligated.”
The three judges also agreed that the state’s executive order “did not make it illegal for the Barre Boss parties to pay rent,” which was the only portion of the contract alleged to be breached.
The appeal judges cited cases from California and New York, among others, that argued over similar contractual language.
In addition, the appeals court reviewed whether Highlands Broadway Opco reasonably tried to mitigate damages by advertising the space is available through a real estate broker. The court found Barre Boss’s trial claims that another tenant was “ready, willing and able to rent the space” were unfounded as the potential tenant did not follow up and make an offer.
According to court records, Barre Boss owes Highlands Broadway Opco over $50,362 in principal costs and additionally owes approximately $15,163 in attorney fees.
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