By now you’ve likely seen an article or two referencing the federal assistance available for payroll, rent and business expenses associated with the CARES Act, or the Paycheck Protection Plan.
Additionally, COVID-19 is likely going to bring up “acts of God” issues in contracts and leases for many months to come – especially for tenants of commercial buildings.
If you have questions regarding the CARES Act, or the Paycheck Protection Plan, please give us a call. In addition to the relief afforded in these Federal programs, there may be options relating to force majeure provisions in your commercial lease agreements.
Force majeure clauses are contract provisions that excuse a party’s nonperformance when “acts of God” or other extraordinary events prevent a party from fulfilling its contractual obligations.
The coming weeks and months will bring many assertions of force majeure in response to quarantines, travel restrictions, business reductions and business closures.
There are three important things to remember about force majeure issues.
- If your contract contains force majeure language that can be interpreted to include the impacts of COVID-19, parties are still under an obligation to mitigate any foreseeable risk of nonperformance, and cannot invoke force majeure where the potential nonperformance was foreseeable and could have been prevented or otherwise mitigated.
- Depending on the circumstances and the jurisdiction, a party will be most likely required to establish that performance is truly impossible rather than not practical or advisable.
- Commercial leases OFTEN have language to exclude base rent or percentage rent as part of the force majeure.Each attempt to assert force majeure will be assessed based upon the particular set of facts in each case.
Among the most important facts are the steps each party took to avoid contractual interruption. Consequently:
- Attempt to secure alternate supply streams in the event a supplier’s operations are impacted.
- Continue to augment your plan for how employees can continue working remotely, or how functions can be managed in the continuing evolving grid of impacted locations, as quarantines and business closures expand; and mitigating the impact of restricted travel both around the globe and within the U.S., if relevant.
- Contact your landlord (perhaps with guidance and consultation from us as your legal counsel) and explain the implications on your business of COVID-19 and explore ways to deal with potential shortfalls or inability to pay. Ask for a workable plan going forward.
- Your efforts do not necessarily need to be successful. A company’s attempt to mitigate its risk in advance will make a huge difference as a court considers whether reasonable steps were taken to satisfy contractual obligations, and whether performance was truly impossible, and not simply inadvisable or impractical.
In summary, review your options associated with the CARES Act and the Paycheck Protection Plan. Additionally, review your contracts related to your force majeure clauses. If we can assist in anyway, please let us know.