In a rental agreement for the operation of a playground, it was stipulated that starting from the third year, the rent would effectively increase. The agreement was executed shortly prior to the COVID-19 outbreak. Two months after its outbreak it was amended and, with the exception of the changes that were added, ratified. However, due to the lock-downs and restrictions imposed on the operation of this type of business during the first two years, the tenant's business plans and expectations were harmed, hence it refused to pay the higher rent fees starting from the third year.
The Court rejected the tenant's contention to that the contract was frustrated and held that the mandatory conditions for frustration of a contract were not met. Israeli law states that insofar as the breach of the contract resulted from frustration thereof, there is no ground for enforcement or compensation. Frustration of a contract is contingent on three cumulative conditions: expectation, influence over the contract, and the condition of prevention. As for expectations, it is required that the breach resulted from circumstances that the breacher did not know or should have known at the time of entering into the contract. Here, while the agreement was executed before the outbreak of the COVID-19 pandemic, two months after its outbreak, when it was possible to anticipate its possible consequences, the contract was ratified by the parties without any stipulation that preserves contention of frustration. Therefore, the condition of expectations has not been met and the tenant cannot contend that the contract was frustrated.