When the tenant’s business is made illegal during the term of the lease, the tenant’s business is likely to disappear altogether, leading to a likely default. What that means for the landlord and tenant may come down to drafting. Consider two similar cases with different outcomes that together give guidance to landlords and tenants.
In 1919, the Florida Supreme Court decided the case of Christopher v. Charles Blum Co. The lease in that case permitted the tenant to operate a bar. During the lease term, Florida banned the sale of liquor at the point of consumption, more or less making bars illegal. The tenant argued that the new law terminated the lease. The court disagreed, finding that the lease permitted the bar use, but did not require it. As a result, when the new law was enacted, the tenant could have used the premises for some other lawful business. The court therefore ruled for the landlord.
A couple of weeks ago, Florida’s 4th District Court of Appeal also dealt with a lease where the tenant’s business became illegal during the term. In Lucas Games Inc. v. Morris AR Assoc., LLC, the tenant’s lease required operation of the leased premises as “an entertainment arcade for persons over the age of 18 years old and for no other use or purpose.” The lease also specifically barred the tenant from having any “coin-operated amusement devices.” The tenant operated a business where customers played computerized slot machines and won prizes. In 2013, during the lease term, Florida banned those types of games outside of designated casinos, but created a safe harbor for coin-operated amusement games.
After the new law was enacted, the tenant shut down its business and the landlord sued. The tenant argued that its performance under the lease was excused due to the passage of the new law. The landlord argued that the tenant could have still performed under the lease by using legal games, such as skee-ball. The appellate court reversed summary judgment for the landlord and sent the case back to the trial court for more proceedings. The court noted that, unlike in Christopher, the entertainment arcade use was required and the lease did not allow coin-operated games.
The lesson from these two cases is that if the tenant’s use becomes illegal during the lease term, whether the use was required or just permitted may very well determine who wins the lawsuit. The landlord and tenant must discuss during lease negotiations whether a use is required or permissive, particularly where the use carries some risk of becoming illegal during the term.