Astral Hotels loses lawsuit for rent refund during renovations and is ordered to pay 400,000 shekels
The agreement between Astral and the companies leasing the Aria Hotel in Eilat did not explicitly cancel the rent exemption during renovations. However, the court prioritized the concept of an "absolute obligation," ruling that business logic and the parties' intent override specific contract wording.
The court recently rejected a lawsuit filed by Astral Hotels, which operates the Aria Hotel in Eilat, against Neot Hof HaAlmog and M.F.A. Tourism, the companies from which it leases the property. Astral sought a refund for rent paid during extensive renovations.
A 40 Million Shekel Renovation
Neot Hof HaAlmog owns the Aria Hotel, with M.F.A. Tourism and Astral each holding a 50% stake. The original lease agreement stipulated that during major renovations, when the hotel could not operate, Astral would be exempt from rent.
However, a 2021 addendum granted Astral exclusive control over the renovation timeline and scope, while mandating that it bear all costs. The addendum also specified that Astral must pay the full annual rent of 15.6 million shekels, describing this as an "absolute obligation, not dependent on anything," and stating that the addendum overrides the original lease. At the end of 2021, Astral closed the hotel for three months to carry out a four-month renovation.
The Dispute
Astral paid 3.75 million shekels in rent but later sued for a refund, arguing that the original exemption remained in effect because the addendum did not explicitly cancel it. The company insisted that the court should rely on the contract's literal language.
The defendants argued that this was a bad-faith attempt to avoid payment. They further contended that the renovation did not necessitate a total closure, as work could have been phased to allow the hotel to remain operational.
The Ruling
The Tel Aviv District Court, presided over by Judge Naftali Shilo, rejected the lawsuit. The court ruled that the parties intended the rent obligation to be absolute. Furthermore, the court found that Astral failed to prove that closing the hotel was necessary for the renovations.
Astral was ordered to pay 400,000 shekels in legal costs.
Response
The judge based his decision on the business logic and testimony regarding the addendum's drafting, concluding that the "absolute obligation" clause precluded any exemptions.
Astral Hotels responded: "We believe the verdict is wrong and intend to appeal to the Supreme Court. The District Court ignored the clear language of the agreement and the practical impossibility of operating a hotel while all public areas undergo thorough renovation."
