As we all know, the ski season was abruptly cut short on one of the busiest days of the year due to the Colorado Governors orders to prevent the spread of the Coronavirus. It was bound to happen, a California skier filed suit against Alterra alleging breach of contract. Why is this case so important? What does this mean for real estate?
As the virus swept across the country, the governor abruptly shuttered all ski resorts in Colorado which quickly swept across the country and all of North America as the largest owners of resorts, Alterra and Vail, closed all of their ski resorts across the continent. This occurred on one of the busiest days of the year, the beginning of spring break. The Colorado Sun did a great article on how the resorts were abruptly closed; this is very interesting and a great read.
What is the basis of the case?
The case seems pretty straightforward. The plaintiff, a Villa Park, California resident, claims he purchased an Ikon Base Pass in April 2019 yet was unable to utilize the offering for the full ski season given Alterra closed its North American resorts on March 14, 2020. Though the resorts were shuttered “well before” the end of the ski season, which typically runs into late April or May or even into the summer, the defendants “have not offered to return, and have not returned, any portion of season pass fees,” the case claims. The lawsuit, which alleges breach of contract, breach of express warranty, unfair dealing and unjust enrichment is seeking class action status to represent all passholders.
On the flip side, Alterra wanted to continue the ski season but was prohibited from operating due to the government order and no fault of their own. The basis of this case is who is liable for the government actions.
Why is this case so important?
First, it is not surprising someone filed a lawsuit against Alterra. I assume a similar suit will be filed against Vail and countless others in the industry. This suit brings up and interesting question, who is responsible for the loss as a result of the abrupt closure that was ordered by the government. How this question is answered will have far reaching consequences not just for the ski industry but for every industry.
What does this mean for real estate?
The answer to the question of who bears the loss from government closures will have far reaching consequences. In real estate there is considerable talk of force ma·jeure which “superior force”, also known as cas fortuit (French) or casus fortuitus (Latin) “chance occurrence, unavoidable accident”, is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, epidemic or an event described by the legal term act of God (hurricane, flood, earthquake, volcanic eruption, etc.), prevents one or both parties from fulfilling their obligations under the contract. In practice, most force majeure clauses do not excuse a party’s non-performance entirely, but only suspend it for the duration of the force majeure. Tenants throughout the United States are citing force majeure as a reason for not paying their rents. Unfortunately, most contracts explicitly exclude rent from force majeure but the concept of who bears the liability of court ordered shutdowns is still critical.
Think of retail stores U.S. retail landlords typically collect more than $20 billion in rent each month, according to data from CoStar Group Inc. So far, April rent collection has ranged from 15% to 30% for landlords with higher concentrations of shuttered businesses, according to an estimate from brokerage firm Marcus & Millichap.
Landlords, who are facing their own debt defaults, are getting frustrated. Some are complaining that large corporations are using the crisis to skip out on rent. Others say they’re not responsible for bailing out tenants and that the federal government or insurance companies should cover the costs instead. The questions are endless on the impact of the coronavirus and who is liable.
How the Ikon case is decided will have far reaching consequences. Businesses across the spectrum are struggling with the question of liability and this ruling will provide guidance. How the courts rule will be anyone’s guess, but it will be critical to watch to see how liability is assigned due to government ordered shut downs.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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