COVID-19 Does Not Justify a Breach of or Deviation from a Contract When Its Arrival in Israel Was Foreseeable

An Israeli court recently rendered an interesting ruling on the impact of COVID-19. The case in question involved the lease agreement for the operation of a hotel. The lease agreement, executed in February 2020, provided payment of rental fees for the month of March. But payment for the months of April and May had not yet been arranged. Accordingly, the plaintiff filed suit to evict the lessee, claiming a fundamental breach of the agreement.

The defendant maintained it was not obligated to pay rent for April-May, since it was unable to operate the hotel under the lease agreement due to COVID-19.  It further argued that frustration of purpose under section 18 of the Contracts Law was satisfied. It, therefore, believed circumstances existed in this case that made performance of the agreement impossible.

The court held that case law substantially and meaningfully limited events that would justify a breach of or deviation from a contract. Even if COVID-19 were regarded as such a factor, at the time of the agreement’s execution, its outbreak had occurred outside of Israel and was thus foreseeable to arrive in Israel as well. Therefore, the defendant’s claim it had a legal reason to breach and deviate from the agreement does not hold. The court ordered the defendant to vacate the rental property.

Contact us to discuss any effects of COVID-19 on real estate leases and rentals.