Due to the spread of the Corona pandemic and the government limitations imposed on the Israeli public, questions began arising on what are the implications of the pandemic on contractual obligations. The frustration law discipline in Israel combines various provisions of several legal doctrines and rulings by various courts, which all deal with this legal issue.
In this short article we will attempt to remove some of the vagueness surrounding the laws which deal with frustration of contracts, and will review one of the most frequently asked questions in the field of hoteliers in Israel at this time – whether the implications of the Corona pandemic (limiting orders and lockdown orders), have an effect on contractual charges pursuant to a hotel lease contract, or not.
Frustration of Contracts Due to Force Majeure
Article 18(a) of the Contracts Law (Remedies for Contract Violation), 5731-1970 (hereinafter: “the Law”, enables the injured party, prima facie, to revoke an agreement due to an event of force majeure when three cumulative conditions are met:
1. The anticipation test: the party arguing the contract frustration, must prove subjectively and objectively, the absence of knowledge and the lack of ability to anticipate (potentially and actually), upon signing the contract, the implications of the Corona pandemic on the binding contract.
The common approach in court rulings is that nearly every event is anticipated whether it is common or not. For example, over the years the Israeli courts have not regarded extreme events such as war, natural damages, severe illness (personal) and even passing away (in certain cases) as a frustrating event, therefore, some even consider Article 18 as a “dead letter” (clause( in the Israeli book of laws.
Nevertheless, in recent years Israeli supreme court has soften the anticipation test (for an expansion, see the Zoabi case). According to this new approach, it will be possible to argue, under appropriate circumstances, that force major events which are not common, such as the implications of the Corona pandemic, cannot be anticipated, and upon the existence of the others conditions of the Article, an unforeseen event could constitute a cause for the termination of the agreement.
2. The second condition in Article 18(a) of the Law requires the violating party to prove lack of ability on his part to prevent the frustrating circumstances. With regards to the Corona virus, this component is likely to be fulfilled.
3. Third and last condition is that it must be proven that at the time intended for the execution of the contract, the execution is not possible, or fundamentally different from the intentions and agreements of the parties at the time of signing the contract. In general, government warrant forcing to close parts of a hotel (the dining room, the swimming pool and such) may constitute a legal prevention from execution the purpose of the lease in a way that is at least “fundamentally different” from that which was agreed upon, and therefore, it is likely that this condition will also be fulfilled under most circumstances.
The Lease and Borrowing Law
The purpose of Article 15(a) of the Lease and Borrowing Law, 5731-1971 (hereinafter: “the Lease Law”), is to exempt a lessee from the payment of rent fees when he is unable to produce benefit from the leased property, for the duration of time in which the lessee was prevented from using the leased property (for the purpose of the lease) due to unforeseen “force majeure” events. The restriction for the article provides, that the exemption is given only where the leased property is land and only when the prevention of use is the result of circumstances related to the leased property and/or its access routes.
Therefore, it seems that the Lease law permits receiving the exemption only in case there is a prevention from using the leased property due to circumstances related to the leased property itself, and therefore the Corona pandemic and its implications, which are external to the leased property, does not enable its application. However, in the Zoabi case, the courts have expanded the meaning of Article 15(a), and have ruled that the article shall also apply when the prevention from making use of the leased property was created due to circumstances which are external to the leased property, as well as legal ones (such as orders limiting making use of the leased property).
During the first months of the Corona pandemic outbreak, it seemed that under the right circumstances, a party to a hotel lease agreement may be exempt from the payment of rent fees due to government decisions limiting the lessee from making use of the purposes of the leased property (external or legal circumstances).
However, in the Ofer Agam case, a judgment recently given by the Magistrates Court on the matter, the exemption given by Article 15 of the Lease Law was denied based on two reasons: (1) according to the court, Article 15 is suitable only for cases where the prevention from making use of the leased property related to a specific leased property alone, and not in cases related to the entire market; (2) it was ruled that the exemption applies only where the lessee has avoided using the leased property completely, namely, in a situation where it is not possible to make use of the hotel at all.
Additional Provisions from Contract Laws and Such:
The provisions of contract laws, government decisions, the doctrine of good faith and doctrines from areas of contract interpretation, enables parties of hotels lease agreements to raise various arguments regarding the interpretation of the agreement. Thus, a party to a hotel operation agreement can influence the content of the system of charges set forth therein, and hereinafter in brief are two examples:
1. The duty of good faith which is anchored in Article 39 of the Contracts Law may require the lessor to take into account an extreme change of circumstances such as the Corona event and reduce the payment of rent. Ruling teaches us, that by raising such an argument, the lessee must take into account, inter alia, his good faith prior to submitting the application, and throughout the engagement between the parties prior to the occurrence of the unusual event.
2. In July 2020, a conclusion report was written on behalf of the “Inter-Ministry Team for the Examination of the Effects of the Corona Crisis on the Fulfilment of Contracts” in the Ministry of Justice. The report recommended amending the Contracts Law so that a “defense” article shall be introduced, according to which, during a frustrating event, it will be possible to delay charges in a way that defense will be given to a lessee from the forfeiture of guarantees and evacuation from the leased property, and it was even recommended that the Minister of Justice will be authorized to change and amend the contract laws via orders. These recommendations may change provisions related to the laws about frustration of contracts, however currently these are recommendations only without any legislative effect. It shall be noted, that even if the recommendations for the legislation amendments are adopted, the change will apply prospectively only.
To summarize, based on the different interpretation approaches regarding Article 18 of the Contracts Law (Remedies), there is great difficulty in estimating whether anyone may have the right to terminate the agreement due to the implications of the Corona pandemic. Furthermore, as of the time of writing these lines, in light of the minimizing interpretation of Article 15 of the Lease Law, a party to a hotel operation agreement is not entitled to receive an exemption from the payment of rent pursuant to the provisions of Article 15 of the Lease Law.
Despite the foregoing, even today, parties to a hotel lease agreement may raise arguments related to the interpretation of an agreement pursuant to the contract law, and thus, in fact, to change and even delay charges pursuant to hotel lease agreement. In addition, in light of the sensitivity and importance of the interpretation of laws regarding the frustration of contracts, the opinion on behalf of the Ministry of Justice and the professional opinion of the Israeli Bar Association, we anticipate further developments in the ruling, both with regards to the interpretation of the provisions of Article 15 of the Lease Law and with regards to Article 18(a) of the Contracts Law (Remedies), and even a change in a legislation outline which will reunite and re-regulate the laws regarding frustration of contracts.
 See: on Civil Appeal 78/715 Katz vs. Nitzhoni, Supreme Court Rulings 33(3) 639, 1979 (published on Nevo).
 The words of Justice Amit, Civil Appeal 4893/14 Zoabi vs. the State of Israel, paragraph 30 (published on Nevo).
 For an expansion see: Civil Appeal 97/6328 Regev vs. the Ministry of Defense, Supreme Court Ruling 54(5) 506 (2000), as well as: Civil Case 07/1072 Gideon vs. Fox (published on Nevo, 03/07/2010).
 (Civil Appeal 240/77 Shlomo Carmel Ltd. vs. Parpori & Co. Ltd., 34(1) 701 (1979)
 Civil Case (Magistrates Netanya) 9349/02 Danino Chaim vs. Yochai Naveh (published on Nevo, 09/05/2005)
 See above the Zoabi case (published on Nevo, 03/03/2016).
 Civil Case in Special Proceeding Regulations 27886-05-20 Ofer Agam Initiation and Construction Ltd vs. Queenstone Initiation and Investments (published on Nevo, 2020).
 See above the case of Ofer Agam Initiation and Construction Ltd. (published on Nevo, 2020).