When the Law Says a Tenant Is — and Isn’t — Excused From Performing Under the Terms of a Georgia Commercial Lease

There are many things that a commercial tenant must consider once it signs a lease. One thing most tenants (or landlords) hope not to have to contemplate is what to do if a legal roadblock prevents the operation of the tenant’s business. In these situations, it is important to understand the circumstances under which the law will, and won’t, excuse performance. A Georgia landlord-tenant attorney can help you with these and other questions.

One case that involved a question of a tenant’s non-performance was a tanning salon that had rented a space from a commercial landlord in a southwest Florida shopping center. The lease called for a five-year term, scheduled to start in August 2013.

So far, this probably sounds like an ordinary transaction. However, at around the time the salon was scheduled to take possession, the city rejected a request from the salon to make certain changes to the property needed to run the tanning business. The city denied the request because, it claimed, the property was zoned with a designation of “C-4,” and tanning salons were not allowed in C-4 zoned properties.

The salon allegedly knew that the zoning code did not explicitly prohibit tanning salons in C-4 zoned properties and that a tanning salon across the street was situated in a C-4 zoned property. The landlord offered assistance, including providing a referral to an experienced attorney who did zoning appeals. The tenant, however, selected a different approach. It simply never took possession of the property.

When the landlord sued for breach of the lease contract in federal court, the tenant asserted several defenses, including frustration of purpose, impossibility, and illegality. All of these things meant that the tenant was not legally obligated to perform under the contract, including paying the rent it promised to pay.

Ultimately, the 11th Circuit Court of Appeals in Atlanta ruled in favor of the landlord. The tenant’s case had several problems. One, the language included in the lease favored the landlord’s position. The lease document expressly stated that the landlord was not guaranteeing that the tenant’s proposed purpose for the space was “lawful or permissible.” This defeated any potential argument the tenant had that the legal barriers to the operation of its business were unforeseeable.

Additionally, the defense of frustration of purpose requires that the party asserting that defense prove that the thing creating the frustration was beyond its control. In the salon’s case, the zoning problem was not beyond its control; it had the option of appealing the decision but simply decided that it did not want to spend the money necessary to mount an appeal. Had, for example, the city enacted an ordinance banning all tanning salons citywide, that might have created a different outcome. The court concluded that the zoning decision was one making the operation of the tenant’s business inconvenient but not impossible. As a result of those facts, frustration of purpose wasn’t an available defense.

Decisions by the 11th Circuit control cases in Georgia, Alabama, and Florida. In this case, the court made its decision by interpreting Florida law. Nevertheless, the outcome of this Florida salon’s case holds important knowledge for Georgia commercial landlords and tenants. Georgia, just like Florida, has legal standards for what happens when intervening circumstances make it impossible to perform under a contract, including a commercial lease. However, if a tenant chooses to walk away from its obligations under a commercial lease upon the basis that it is impossible to perform, the event must be a true impossibility, rather than just something that is an inconvenience or hindrance. Otherwise, the landlord is still entitled to damages under a breach of contract claim.

If you find yourself embroiled in a lease breach dispute, it is essential to have skilled counsel working for you. The experienced Atlanta landlord-tenant litigation attorneys at Poole Huffman, LLC have been working for many years to help our clients as they both pursue and defend commercial lease disputes and other contract breach cases. Contact our attorneys online or by calling 404-373-4008 to schedule your confidential consultation.

More blog posts:

Property Investors Beware: “self-Help” Evictions Are Never an Option, Atlanta Business Litigation Attorneys Blog, June 18, 2015

Commercial Real Estate Broker’s Liens, Atlanta Business Litigation Attorneys Blog, Sept. 23, 2013