The COVID-19 pandemic and the lockdowns imposed in its wake created an earthquake in Israel’s commercial real estate market. Many business owners found themselves facing a broken trough: store gates were locked by government orders, revenues plummeted by dramatic percentages, yet demands for payment of rent and management fees continued to flow as usual. <\/p>\n\n
How did the courts resolve the inevitable dispute between landlords and tenants? Between 2021 and 2025, a clear legal doctrine emerged in the Magistrate’s and District Courts, balancing the dry letter of the law with the need for fair burden-sharing under the principle of good faith. Below is the complete legal guide analyzing the statutory provisions, dynamic interpretation, and current case law trends. <\/p>\n\n
Legal attempts to exempt tenants from paying rent during the pandemic were based on two main statutory avenues, alongside a third overarching principle that ultimately changed the landscape:<\/p>\n\n
Section 15 of the Tenancy and Loan Law, 5731-1971: Purpose-Based Frustration of Lease<\/p>\n\n
Section 15(a) of the Law provides that a tenant is exempt from paying rent if prevented from using the leased property for the purpose of the lease “due to circumstances related to the leased property or access routes to it.”<\/p>\n\n
The Restrictive Interpretation During COVID-19: The courts repeatedly held, relying on the guiding Zoabi precedent, that this provision applies only when the impediment is rooted in the property itself (such as a physical defect or specific blockage). The COVID-19 crisis was a broad, external, and comprehensive event that affected the entire economy, and therefore it was determined that the specific exemption arrangement in Section 15 of the Tenancy and Loan Law does not apply. <\/p>\n\n
Section 18 of the Contracts (Remedies for Breach of Contract) Law, 5731-1970: The General Frustration Cause of Action<\/p>\n\n
Section 18(a) provides protection to a party in breach if the breach resulted from circumstances that the party did not know, should not have known in advance, and could not have prevented, and performance of the contract under those circumstances is impossible or fundamentally different from what was agreed.<\/p>\n\n
The Three Cumulative Conditions: To prove frustration, one must demonstrate: (1) lack of foreseeability; (2) severe impact rendering performance impossible; (3) inability to prevent the circumstances.<\/p>\n\n
Frustration Law as “Shield, Not Sword”: The courts clarified that the frustration claim under Section 18(a) serves solely as a defense against enforcement or damages claims. It does not grant the tenant an acquired right to unilaterally reduce rent or “freeze” the contract while continuing to hold the leased property and make any use of it (such as storing equipment). <\/p>\n\n
Section 39 of the Contracts (General Part) Law, 5733-1973: The Principle of Good Faith<\/p>\n\n
This section, which requires contractual obligations to be performed in a customary manner and in good faith, became the judges’ primary working tool. The courts determined that a landlord’s strict insistence on payment of 100% of rent during an absolute government lockdown constitutes conduct lacking good faith. Under this principle, judges performed “adaptation of the contract to changing circumstances.” <\/p>\n\n
One of the most consistent rulings in case law over the years is that a tenant is not entitled to a complete and unilateral exemption from paying rent, even if their business was completely shut down.<\/p>\n\n
In the guiding decision Yuval Yarin v. Ahava (2023), the court held that a tenant who decided to cancel checks entirely but continued to physically hold the store (including for equipment storage purposes) acted in bad faith. Frustration laws were not designed to allow unilateral freezing of the contract; if the tenant seeks complete exemption, the legal avenue available is notice of contract termination due to frustration, not holding the property free of charge. <\/p>\n\n
Additionally, the courts repeatedly emphasized that if the contract or its addendum was signed after the outbreak of the pandemic (when COVID-19 was already an existing and known fact), one cannot claim future frustration, as the “unforeseeability” condition completely collapses.<\/p>\n\n
The burden of proof to demonstrate frustration or the need for contractual intervention rests entirely on the tenant’s shoulders. Rulings from 2024-2025 present extremely stringent evidentiary requirements: <\/p>\n\n
\u2022 Presentation of Solid Financial Infrastructure: The court rejected frustration claims from tenants who did not present audited financial statements, multi-year turnover data, or accountant certification attesting to severe and sustained revenue damage. General and oral claims about “revenue decline” were consistently rejected. <\/p>\n\n
\u2022 Government Relief Grants: Receipt of government compensation and grants (under the Economic Relief Plan Law) served as a central reason for denying frustration claims. Since the state distributed grants to businesses based on turnover decline compared to 2019 (when tenants paid full rent), the compensation was intended to enable the tenant to meet their fixed obligations\u2014including payment to the landlord. A tenant who received grants, or refrained from applying for them, was obligated to pay full rent. <\/p>\n\n
Review of the major decisions issued over the years reveals a clear hierarchy of legal solutions according to the nature of the business, damage, and parties’ conduct:<\/p>\n\n
In cases where absolute government lockdown was proven that physically prevented opening the business (such as gyms or stores in shut-down tourist areas), and in the absence of adequate government compensation to the tenant, judges tended to divide the burden equally:<\/p>\n\n
\u2022 Heleni Investments v. Lasri (2021): It was ruled that a gym tenant that was completely shut down by orders, and was not eligible for grants due to the business opening date, would pay only 50% of the arrears debt for the lockdown period as a fair interim solution.<\/p>\n\n
\u2022 Yuval Yarin v. Ahava (2023): A differential division was determined\u2014for the full lockdown months (April-May 2020) the tenant would pay 50% of rent and management fees, and for the softened restriction months (June-September 2020) she would pay 100% (full price).<\/p>\n\n
In large malls, an approach was adopted that sharply separates rent from management fees:<\/p>\n\n
Mifaalei Tachanot v. Gentleman (2025): The court refused to reduce rent because the chain received significant state grants (approximately NIS 1.45 million). However, it was ruled that management fees would be reduced by one-third (33.33%) by way of estimation, since it was proven that the mall’s maintenance, cleaning, and security costs actually decreased during the lockdowns. <\/p>\n\n
Tenants who took extreme unilateral measures and showed no willingness to compromise in real time lost the court’s protection:<\/p>\n\n
Ravatz Investments v. Babylon Park (2025): The court obligated the tenant to pay 100% of the claimed rent and management fees. It was determined that the claimed period (from July 2021 onward) was characterized by only minor restrictions without lockdowns, the business operated normally, and the tenant decided on her own not to pay anything while continuing to hold a massive 2,000 sq.m. commercial property. <\/p>\n\n
In cases where tenants conducted themselves exemplarily and paid most of the rent, the courts condemned landlords’ insistence on negligible debt balances:<\/p>\n\n
R.A. Frank v. Wichelbasky (2021): Law office tenants paid 71% of rent in real time during the first lockdown despite being unable to use the property. The landlord sued for the balance of NIS 4,007. The court completely dismissed the claim and determined that the landlord’s insistence on opening legal proceedings after 8 years of exemplary relations contradicts the principle of good faith and any basic human decency, and ordered the landlord to pay punitive legal costs of NIS 10,000.<\/p>\n\n
5. Summary and Practical Conclusions for Business Owners and Landlords<\/p>\n\n
Court rulings from 2021\u20132025 convey an unambiguous message to Israel’s business market: the COVID-19 crisis does not constitute a free pass to evade contractual obligations.<\/p>\n\n
The proper way to resolve crises of this type is conducting open negotiations and reaching a fair settlement to share the burden (typically a temporary reduction of 30% to 50% during full shutdown periods). A party who chooses to entrench in their position, unilaterally cancel charges, or avoid presenting transparent financial data\u2014will find themselves obligated to pay the full amount plus heavy legal costs. <\/p>\n\n
*The content presented in this article is based on analysis of court decisions issued in Magistrate’s Courts between 2021 and 2025, and does not constitute a substitute for individual legal advice.<\/p>\n","protected":false},"excerpt":{"rendered":"
The COVID-19 pandemic and the lockdowns imposed in its wake created an earthquake in Israel’s commercial real estate market. Many business owners found themselves facing a broken trough: store gates were locked by government orders, revenues plummeted by dramatic percentages, yet demands for payment of rent and management fees continued to flow as usual. How did the courts resolve the […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_et_pb_use_builder":"off","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[41,46],"tags":[],"class_list":["post-2257","post","type-post","status-publish","format-standard","hentry","category-contracts","category-latest-updates"],"acf":[],"yoast_head":"\n