June 29, 2020
June 22, 2020
- PPP Loan Forgiveness Application Forms Updated and Streamlined
- Nevada Division of Insurance to Disallow Policy Exclusions Related to COVID-19
- CDI Announces New Order Regarding Workers’ Compensation Premium Savings for CA Businesses Affected by COVID-19
june 15, 2020
june 10, 2020
- Note to the SBA: Debtors in Bankruptcy Are Eligible for PPP Loans
- California Modifies the Tolling of Statutes of Limitations in Civil Cases
june 8, 2020
- CCPA Enforcement Date Fast Approaching Regardless of COVID-19
- Hotels in California May Be Days Away From Reopening: What Hoteliers Need to Know
June 4, 2020
may 29, 2020
may 28, 2020
- House Introduces Pandemic Risk Insurance Act of 2020 in the Wake of COVID-19 Business Interruption Claims
may 27, 2020
- Hoteliers Beware: a Return to Business Post-Pandemic Brings With It Potential Legal Liability
- House Contemplates Revisions to the Paycheck Protection Program
may 15, 2020
may 14, 2020
- U.S. House Democrats Introduce HEROES Act, a New $3T Stimulus Package
- SAFE Banking Act for Cannabis-Related Businesses Included in the HEROES Act
may 12, 2020
may 8, 2020
- Treasury and the SBA Issue Guidance Regarding the Employee Retention Credit
- Businesses Reopen in Los Angeles County as Stage 2 of California’s Statewide Plan Begins
- Update: Large Employers Required to Pay Coronavirus-Related Sick Leave Under New L.A. County Ordinance
may 6, 2020
- SBA Extends PPP Certification Safe Harbor to May 14
- A 2008 Redux: IRS Provides Temporary Cash/Stock Dividend Relief for Publicly Offered REITs and RICs
- EPLI Insurance and Employee Benefits in the Age of the Coronavirus
may 5, 2020
- Update: PPP Guidance Issued by the SBA and U.S. Treasury at Odds With the CARES Act—Michelman & Robinson Files First-of-Its-Kind Lawsuit Challenging FAQs
- NAIC Issues Business Interruption Data Call in the Wake of COVID-19
may 4, 2020
- PPP Guidance Issued by the SBA and U.S. Treasury at Odds With the CARES Act—Michelman & Robinson Files First-of-Its-Kind Lawsuit Challenging FAQs
may 1, 2020
april 29, 2020
- Planning for Your Employees' Return to the Workplace
- Los Angeles Hospitality Workers Among Those Thrown a Potential Lifeline
april 24, 2020
- Attention Cannabis Businesses: Hope May Be on the Horizon for Federal COVID-19-Related Relief
- California Department of Insurance Issues Notice Granting Tax-Filing Extension in Response to COVID-19
- SEC Approves Amendments to Nasdaq and NYSE Continued Listing Requirements Due to the COVID-19 Pandemic
April 23, 2020
april 21, 2020
- Additional Funding Is on the Way to Resurrect the PPP
- Certifying Your PPP Loan: Proceed With Caution
april 17, 2020
april 16, 2020
- Employment in the Wake of Coronavirus: EEOC and OSHA Guidance Allows Employers to Go Where They Could Not Go Before
- New Yorkers Ordered to Stay at Home Even Longer Amid the COVID-19 Crisis
- Paycheck Protection Program Funds Exhausted
april 15, 2020
- Attention Insurers: the CDI Has Ordered You to Fairly Investigate All Business Interruption Insurance Claims Caused By the COVID-19 Outbreak
April 14, 2020
- Insurance Companies Have Been Ordered to Provide COVID-19-Related Premium Relief to Businesses and Drivers in California
- What to Do If Your New York Business Has Been Deemed Non-Essential
APRIL 13, 2020
- IP Deadlines and Fees Extended Under the CARES Act
- Employment in the Wake of Coronavirus: Reintegrating Your Workforce in the New Normal
APRIL 10, 2020
- You Successfully Applied for and Received a PPP Loan Under the CARES Act: Now What?
- Safer at Home Order in L.A. Extended to May 15
- Maintaining Your Trade Secrets During the Coronavirus Crisis
APRIL 9, 2020
april 8, 2020
- Congress Looks to Bolster the PPP With Another $250B in Funding
- U.S. Treasury Provides Further Guidance to PPP Borrowers and Lenders
- L.A. Mayor Amends COVID-19-Related Paid Sick Leave Ordinance
april 7, 2020
- Clarifying the Paycheck Protection Program: Payment of Insurance Premiums and Loan Forgiveness under the CARES Act
April 3, 2020
april 2, 2020
april 1, 2020
March 31, 2020
march 30, 2020
- Large Employers Required to Pay Coronavirus-Related Sick Leave Under New L.A. Ordinance
- Insurance Coverage Potentially Triggered by COVID-19
- Attention Insurers: CDI Orders Mandatory Call for Business Interruption Coverage Information in the Wake of COVID-19
- DOL Is Requiring Employers to Post Families First Employee Rights Notice
March 27, 2020
- A Comprehensive Guide to Understanding Coronavirus-Related State Assistance Programs: Who is Giving What to Whom (Part II)
- IRS Releases “People First Initiative” Temporarily Adjusting and Suspending Key Compliance Actions
- HHS Relaxing Enforcement of HIPAA to Facilitate Sharing of Information During the COVID-19 Crisis
March 26, 2020
march 25, 2020
march 24, 2020
- Navigating the Coronavirus Pandemic: a Critical Business Review Checklist
- SBA Loans for Companies Impacted by Coronavirus
- SEC Relaxes Federal Proxy Rules for Annual Meetings
march 23, 2020
- Federal Reserve Responds Boldly to Coronavirus-Related Economic Downturn
- The Number of Jurisdictions Implementing Stay-at-Home Orders Is Increasing Exponentially
- Michelman & Robinson’s Guide to Coronavirus-Related Paid Sick Leave and Unemployment Insurance Laws in the Tri-State Area
MARCH 21, 2020
- New Jersey Orders Its Residents to Stay Home
- “Essential Businesses”— What if I am Stopped?
- The IRS and States Provide Tax Relief in the Wake of the Coronavirus Pandemic
MARCH 20, 2020
- New York Governor’s PAUSE Order
- Illinois Governor’s Statewide Stay-at-Home Order
- Force Majeure Clauses in Commercial Real Estate Contracts
MARCH 19, 2020
- SEC Provides Regulatory Relief for Public Reporting Companies
- Student Loan Borrowers Can Breathe a Sigh of Relief, At Least Temporarily
- California Governor's Statewide Stay-At-Home Order
MARCH 18, 2020
- "Shelter in Place" Orders
- Telecommuting in the Age of Coronavirus
- Families First Coronavirus Response Act Just Passed by the Senate and Signed Into Law by the President
MARCH 17, 2020
- M&R Coronavirus Risk Mitigation Team: A Multi-Disciplinary Legal Team Ready To Immediately Address A Host Of Coronavirus-Related Issues for Businesses, Quickly And Holistically
MARCH 16, 2020
MARCH 5, 2020
Force Majeure Clauses in Commercial Real Estate Contracts
You may be hearing the phrase “force majeure” being thrown around quite a bit in response to the upheaval caused by the coronavirus. But what does this archaic phrase mean for you and your real estate contracts? In short, a force majeure clause operates to excuse performance obligations in an agreement or to extend time of performance when an unforeseeable event, or one that is "beyond the contractor's control," causes one or more parties to be unable to meet their contractual obligations. Given that the coronavirus may well qualify as a triggering event for purposes of a force majeure clause in one of your contracts, we offer the following information, which is geared toward commercial real estate.
Q. Do force majeure clauses impact commercial real estate contracts?
A. Yes. Nearly all commercial contracts, including most commercial leases, contain some form of force majeure clause. Examples of a force majeure include prevention, delays or stoppages due to strikes, lockouts, labor disputes, terrorist acts, acts of God, governmental actions, inactions or delays, civil commotion, extreme weather, fire or other casualty, and/or other causes beyond the reasonable control of the party obligated to perform.
That being said, even in the event of a force majeure, commercial tenants are typically still on the hook to pay rent to their landlords. Many commercial leases include language stating that force majeure may not be raised as a defense for a tenant’s non-performance of any obligations with regard to the payment of rent. Such carve-outs are extremely advantageous for landlords and—absent other possible defenses (see below)—effectively mean tenants will not be able to circumvent rent altogether—or pay lesser amounts—if something out of their control occurs that results in their landlords being unable to perform their duties under any given commercial lease. Of note, the carve-outs also act to insulate landlords from tenants that refuse to pay rent because of a force majeure that prohibits those tenants from entering or continuing their business operations on leased premises.
Rent aside, force majeure usually excuses landlords and tenants from other performance under their commercial leases, but only for a period equal to the prevention, delay, stoppage or inability to perform. And of course, if a commercial lease does not include the carve-out language referenced above, even a tenant’s rent may be subject to a force majeure clause.
Q. Are force majeure clauses enforceable?
A. Yes, but the analysis is fact-intensive and should be considered on a case-by-case basis. Especially important is the precise language of the force majeure clause at issue. As with all contractual disputes, the terms of the agreement (for our purposes here, a commercial lease) and the intent of the parties control a court’s analysis. Force majeure clauses will only limit damages where circumstances beyond the parties’ control have frustrated their reasonable expectations.
Q. Does the coronavirus pandemic trigger the force majeure clause in your contract?
A. Possibly. Again, the inquiry will turn on the specific language in the force majeure clause at issue coupled (potentially) with the governmental orders in place in the jurisdiction where the contract is to be performed.
Most courts read force majeure clauses narrowly, especially those that use unspecific terminology, catch-all phrasing, or the term “act of God.” In fact, the applicable test does not limit triggering factors to “acts of God,” but focuses on the unforeseen nature of the force majeure event and the ability of parties to a contract to have prevented the circumstance if they acted diligently.
However, some force majeure clauses expressly identify “illness,” “disease,” “epidemic,” “pandemic,” or similar terms in the list of triggering acts. In those instances, it is fairly clear that the coronavirus outbreak would activate the force majeure clause and excuse contract performance.
If your force majeure clause does not contain these illness-related terms, it still may be in play. For example, many force majeure clauses are triggered where governmental decrees, laws, or ordinances render performance untenable. Given the influx of coronavirus-related governmental orders prohibiting gatherings of people—such as the San Francisco Bay Area’s shelter in place order—parties to a contract could reasonably lean on their force majeure provision in these instances. Further to that point, parties in California may even argue that the state government has already declared a force majeure event resulting from the pandemic. On March 12, Governor Gavin Newsom issued Executive Order N-25-20, providing, in part, that “state and local public health officials may, as they deem necessary in the interest of public health, issue guidance limiting or recommending limitations upon attendance at public assemblies, conferences, or other mass events, which could cause the cancellation of such gatherings through no fault or responsibility of the parties involved, thereby constituting a force majeure.”
Big picture: while a force majeure provision may be narrowly construed and, under the laws of some states, such as New York and Texas, only triggered where the clause clearly and expressly includes the contingent event, commercial landlords and tenants should understand that even catch-all language making reference to “calamities” or “causes beyond a party’s reasonable control” may be leveraged to their advantage depending upon the circumstances.
Q. Are there other related contract doctrines available as a result of the coronavirus pandemic?
A. Yes, parties to an agreement might be able to assert the defense of “frustration of purpose” and essentially argue that the stated purpose of the contract is frustrated by a governmental prohibition in response to the virus. The case law, at least in some jurisdictions, includes solid precedent as it concerns frustration of purpose based on a government order.
Impossibility of performance is another potential defense to contract enforcement, though not a terribly effective one. This doctrine is construed quite narrowly and usually applied only where performance is objectively impossible, such as where a “thing” necessary for performance has been destroyed. In theory, a party to a commercial lease could argue that it was prevented from performing due to a shelter in place, quarantine, or an isolation ordinance decreed by executive order, but to the extent commercial buildings remain open to provide minimum basic operations and essential business, it is not likely “impossible” for a tenant or a landlord to perform under their commercial lease. This is especially true as it relates to the payment of rent.
It is important to note that in certain contracts, falsely invoking the defense of force majeure or one of the alternative defenses just listed—whether or not in good faith—can alone constitute a breach of contract leading to more potential problems.
Q. Are there any additional concerns and strategies I should keep in mind?
A. In the commercial real estate context, be proactive with your landlord, tenant, or lender. We all are operating in the same uncertain times and landscape, and virtually every business owner understands the economic hardships we all face—your, landlord, tenant or lender included. For instance, rather than waiting until after a payment is late or missed, proactively reach out to those with whom you do business and discuss the circumstances and your options. To that end, consider negotiating modifications and forbearance agreements, which set forth in writing in advance how the parties intend to deal with the pandemic’s impact on their business relationship.
Businesses should also take a close look at tax and cash flow relief programs available to them from the federal and state governments and their respective agencies. For example, the federal government recently announced that it would give taxpayers a 90-day extension to file and pay 2019 income taxes due on up to $1M in tax owed, which is meant to cover pass-through entities and many small businesses. Commercial landlords and tenants should research sources of financial and tax relief, and discuss the same with their trusted attorneys, accountants, brokers, and advisers.
Please know that we are here to help you in any way we can. That includes coordination with your insurance and real estate brokers, both of whom should be familiar with existing market conditions.
We are working diligently to keep our clients up to date on coronavirus-related developments. Nevertheless, these developments are changing daily and, in some cases even hourly, so it is important that you make sure you are dealing with the most current information. That being said, this alert is not offered, and should not be relied on, as legal advice. You should consult an attorney for guidance and counsel regarding any specific concern or situation.