“You can’t go back and change the beginning, but you can start where you are and change the ending” – C.S. Lewis
Since it is the first of the month, you and your small business may be searching for ways out of your lease obligations. At the time that you signed your lease, a pandemic was surely the last thing on your mind. Of course, you read the fine print and reviewed the terms, but it all seemed straightforward—until now. COVID-19 has had a major impact on commercial real estate. With government-mandated business closures and social distancing restrictions in place, you’re most likely seeking a recovery strategy. If you’re trying to get out of a lease agreement or obtain lease concessions due to COVID-19, it’s time to take a deep dive into that contract. You’ll want to carefully review your lease agreement to understand your rights, and you’ll need an attorney’s expertise to interpret the contract. Until the end of May, MHMLPA is offering drastically reduced retainers for small business owners in need of assistance planning a way back to prosperity. Contact us today if you are in need of creative and effective legal solutions and counsel.
Your lease agreement likely contains a number of provisions that might excuse you from the payment due to COVID-19. These provisions typically outline an event that makes fulfilling your contract ill-advised, impractical, or impossible, allowing you to temporarily delay or completely excuse your contractual obligations. The key clause to look out for is a force majeure clause (that’s French for “superior force”). This describes events beyond your control that can relieve you from liability of either non-performance or delayed performance of the contract.
What qualifies a force majeure event?
A force majeure clause is dependent upon the specific contract. It’s important to review the language used, and that’s where seeking counsel will be your best course of action. Force majeure events commonly include a pandemic or epidemic, public health emergency, communicable disease outbreak, quarantine, government or administrative action, changes in laws or regulations, and failure of upstream suppliers. Each one of these events can be applied and interpreted differently.
You’ll first want to note whether a pandemic is specifically listed as a force majeure event in your contract. If the clause contains catch-all wording, this current situation might fall under the general language such as “other similar events” or “acts of God.” It’s also important to note that, if you signed the contract after the COVID-19 situation became a widespread problem and the pandemic was not specifically listed, a force majeure clause is unlikely to apply to a new contract.
What other considerations apply to force majeure?
In order for force majeure to apply, you must be prepared to prove causation. You’ll work closely with your counsel to demonstrate a conclusive connection between the pandemic and your business’s failure to meet the contract. You’ll also be required to show that you took all reasonable steps to mitigate or avoid the effects of the pandemic on your contractual performance. Your counsel will help you identify any exclusions in the clause that would affect either party’s rights or obligations.
If you’re intending to pursue a force majeure consideration, your contract most likely also lists out the requirements to provide notice to your landlord and how to formally deliver that notice.
The force majeure clause may temporarily get you off the hook for the contract or give you cause for termination of the contract if the event continues for an extended duration. Qualifying factors such as travel restrictions, forced business closures, canceled events, declared states of emergency, and shutdowns of public services may all come into play.
Is a force majeure clause my only option?
If there is no force majeure clause in your contract or it contains specific language that does not apply to COVID-19, hope is not lost. There are a few other options for your defense.
Impossibility
Impossibility can be considered if the performance of the contract becomes objectively impossible because of an ensuing event beyond your control. In this instance, performance must be truly impossible – not just expensive – and the nonoccurrence of that event assumed at the time the contract was signed.
Impracticability
Impracticability is similar to impossibility except that it excuses performance when you can demonstrate it’s so difficult and expensive to fulfill the contract that it becomes impractical (though still technically possible).
Frustration of Purpose
This limited excuse applies when, due to a supervening event, the impacted party’s main purpose for entering the transaction is removed. Basically, the transaction now makes no sense given the purpose of the contract in the first place.
Your first step is to seek counsel
The bottom line is that every situation will be different when reviewing your contract in light of this global crisis. We are offering drastically reduced retainer fees for small businesses affected by COVID19. Hiring counsel can substantially reduce your stress level because we can field all of your creditors’ calls while you plan out a strategy for your comeback. At MHMLPA we have sufficient experience, resources, and creativity to help you determine effective solutions to your unique circumstance. There is room for interpretation and innovation in this unprecedented situation. We will comprehensively review your rights and obligations to help you determine the correct and ethical plan of action to protect your business and to survive so you can thrive in the future.