With coronavirus (COVID- 19) cases increasing exponentially by the hour and stay-at-home orders being issued throughout most counties in the Florida, our small business clients are feeling the impacts as many are required to leave their offices or retail or restaurant fronts vacant (while rent is still coming due). As of March 30th, President Trump has extended social distancing guidelines to April 30th and this along with the stay-at-home orders have left our clients wondering how they are going to keep their businesses afloat. Many of our clients have asked us how they can “get out” of their contractual obligations (i.e. paying rent). Below is a general overview of some contract theories which may be relevant in this unprecedented time.
The legal concept of "force majeure" is widely misunderstood. A force majeure clause is a contract provision that relieves the parties from performing their contractual obligations when certain or extraordinary circumstances outside of their control making their performance impracticable, illegal, or impossible. Some contracts will outline the circumstances in more details than others. Examples of circumstances that force majeure clauses generally outline are acts of god, wars, revolutions, and epidemics or pandemics (like COVID-19). When considering the applicability of the force majeure clause a court will look to whether (1) the event is one which the contract lists as a qualifying act under the force majeure clause; (2) the event was unforeseeable and (3) the event was outside of the party’s control. [1] However, in reality, many force majeure clauses in commercial leases give options to the landlord, not the tenant, or they do give options to the tenant, they may not be strong enough to "cancel" obligations entirely. This is where hiring an attorney to review these clauses is important before you attempt to negotiate any terms with your landlord.
Even if the force majeure provision of the contract is not applicable there are other theories of contract law which may be excuse performance during the coronavirus outbreak. Under The Uniform Commercial Code (UCC) [2], a seller is excused from performing under a contract when “performance as agreed upon has been made impracticable by the occurrence of a contingency the non-occurrence which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid”. Recent governmental regulations, for example stay-at-home orders, may make it easier to invoke an impracticability excuse. There is also the defense of impossibility with may be asserted where “purposes for which the contract was made, have, on onside become impossible to perform”. [3] Governor Desantis has directed all Florida bars and nightclubs which may help to prove an impracticability or impossibility defense if you are a bar or nightclub owner.
If impracticability and impossibility defenses fail, there is also the defense of frustration of purpos. Under Florida law, frustration of purpose refers to the condition surrounding the contracting parties where one of the parties finds that the purpose for which it bargained, and which purposes were known to the other party, have been frustrated because of the failure of consideration or impossibility of performance by the other party. [4] The party trying to invoke the frustration of purpose defense must be able to prove that the circumstances making the performance impossible were not known to the party. The coronavirus pandemic is not one which a party would be able to see coming when entering into a contract.
The coronavirus pandemic is one which has and will continue to have a serious impact on businesses, small and large throughout our country. We recommend you reach out to an attorney to look at the specific language of the contract and applicable law to determine your best course of action.
