Loeb & Loeb Secures Court of Appeal Victory in the State of California for Plaintiff in a Pandemic-Related Rent and Construction Obligation Dispute

Loeb & Loeb successfully represented the plaintiffs, KB Salt Lake III, in a case involving a breach of lease by its tenant, Fitness International, an international gym operator under the brand LA Fitness. The dispute stems from Fitness International’s failure to pay rent and complete agreed remodeling of the premises located in Los Angeles into a new state of the art gym under the terms of its lease.  Fitness International had stopped paying rent and all construction for two years, citing to COVID-19 closure orders, but continued to stay in possession of the premises. KB Salt Lake filed an unlawful detainer suit and the trial court awarded summary judgment, rejecting all of Fitness International’s COVID-19 pandemic related defenses.  On September 26, the Court of Appeal for the Second District of California affirmed the award for KB Salt Lake.

The dispute stemmed from an amended lease agreement for 11 years that Fitness International entered into in 2016 with KB Salt Lake III, LLC, which required Fitness International to renovate the premises and expand the gym facilities at the Chatsworth site in Los Angeles where it operated. The construction began in November 2019 and was anticipated to finish by August 2020. In March 2020, the Governor of California proclaimed a state of emergency due to the COVID-19 outbreak and issued several executive orders to limit the spread of the virus. This included the closure of indoor gyms, while commercial construction and “essential business” was allowed to continue.

However, Fitness International stopped construction during the pandemic and ceased paying rent April 2020 onwards, while remaining in possession of the premises, citing COVID-19 emergency orders and invoking force majeure provisions. 

On September 10, 2021, KB Salt Lake served Fitness International with a quit or pay rent notice amounting to $239,598.35 within five days, which was not satisfied. As a result, KB Salt Lake initiated an unlawful detainer lawsuit, and the trial court sided with KB Salt Lake, granting it summary judgment.

Fitness International promptly filed an appeal against the judgement in the Court of California Appeals, citing several challenges that relied on the lease's force majeure provision, as well as the legal principles of frustration of purpose, temporary impossibility, and impracticability. All of Fitness International's arguments were based on its belief that the state and local COVID-19 closure orders made it "illegal" to complete the renovations to the premises and that it was excused from payment of rent.

The Loeb team was able to demonstrate that the COVID-19 closure orders did not interfere with Fitness International's construction since they excluded commercial construction and allowed "essential businesses" to continue operating. Furthermore, Fitness International could not present evidence that the closures hindered or prevented rent payment under the lease's force majeure clause. Lastly, Fitness International failed to demonstrate that the doctrines of commercial frustration, impossibility, or impracticability excused its obligation to pay rent.

The Second Appellate District affirmed the trial court’s judgment on September 2023 and concluded that our client, KB Salt Lake is entitled to recover its costs. This victory is significant being the first published case in the Second District Court of Appeal in California on the issue of lease rent obligations and on construction obligations affected by the pandemic.   

The Loeb litigation team that represented the plaintiff was led by Real Estate Litigation partner Thomas Lombardi and associate Matthew Anderson.