Coronavirus and Real Estate a Force Majeure?

Our office has received numerous calls from clients regarding the unfortunate but likely scenario of a tenant not being able to pay rent in the coming weeks and months due to business interruptions with the Coronavirus outbreak. Many of our clients have asked if the “Force Majeure” clause of their lease protects the tenant from their financial obligation or any obligations that they may have as a landlord.

Our office represents both landlords and tenants regarding both commercial and residential tenancies.  Typically residential leases are entered using a standard form approved by the Florida Bar and Florida Realtors Association, while we draft and negotiate the terms in commercial leases with specificity. 

As with any question our clients have with their lease agreements and other real estate transactional documents the answer is it depends. It depends exactly what is in your lease agreement, though generally a Force Majeure clause does not protect either side on their financial obligation.

Commercial Leases:

Most commercial leases have many clauses and requirements regarding operating hours, payment terms, and the ability to cure defaults. Additionally they typically contain some sort of “Force Majeure” clause or protections regarding interruptions or delays outside of a specific party’s control. However, much of the time these clause exclude financial obligations. In fact in many of the leases our office drafts, the Force Majeure clauses are placed in the lease to protect the landlord as to its obligations to provide occupancy of the property, if such becomes impeded due to a delay outside of the Landlord’s control, e.g. government shut down, or natural disaster. 

Furthermore, leases often allow a tenant to cure a default in a “reasonable” amount of time, which may require extensions due to impossibility of curing the breach pursuant to the cure period. However, such time to cure breaches almost always exclude the payment of rent.

Ultimately, an interruption of a tenant’s business does not necessarily mean that it is “impossible” for a tenant to meet its financial obligations. Banks are open and funds can be transferred, and the lack of cash-flow to your tenant is typically not covered as an excuse of performance under the lease. 

However, for some tenants, such as restaurants and bars that have been shut down by government order, they may have an argument for impossibility of performance under Florida common law. The reason for such an argument is that the risk of the government shutting down an establishment for an extended period of time is unprecedented in recent history. This action was not a risk that was reasonably assumed by the tenant upon entering into the lease, unlike for instance a closure for a hurricane or fire.  

Ultimately, given these unprecedented times it is a good time to review your leases regarding both the rights of the landlord and tenant and prepare a plan if you have any tenants that you believe may struggle making any rental payments.

It is also important to note that for both residential and commercial matters courts throughout the state of Florida are in limited operations at this time. Meaning the ability to file and serve evictions may not be possible for some time. Also, many counties in Florida, including Miami-Dade County, have suspended executing all writs of possession until the State of Emergency is over.

Finally, if you come to any agreement with any tenant struggling to make rent payments it is imperative that such agreements are made in writing pursuant to the terms of the lease in order to allow the agreement to be enforceable later on. 

Residential Leases:

A tenant’s rights to perform, and meet their financial obligations in residential leases is typically limited to Florida statute. A tenant’s inability to make their rent payments, so long as its due to no fault of the Landlord, is seldom protected under the typical residential lease in Florida nor is such inability to pay rent protected under Florida law.

In fact, the standard Florida Bar/Florida Realtor residential lease does not have a Force Majeure clause. However, as with any lease dispute, including commercial evictions, landlords must move forward with evictions through the court of the county the property is located in. Landlords should never take any actions for a “self-help” eviction, such as locking doors or shutting down water and electricity, as there are financial penalties for doing so.

Currently, many counties throughout Florida are not executing evictions at this time, and some courts are shut down to only address the most important legal matters. Evictions are not one of those matters. Meaning, Landlords can expect a longer than usual delay to proceed with any evictions of their tenants.

Purchase Contracts and Mortgages:

Lastly, on the other side of the spectrum there are issues regarding closing on pending transactions along with making mortgage payments.  Clients may have questions as to their legal remedies that this unusual set of circumstances may bring.

Typically, sales contracts allow for the delay in closing due to an event that prevents closing from occurring. For example, a city wide shut down of businesses or banking institutions is a valid reason to suspend closing until the time the situation is resolved. On the other hand, just wanting to “wait it out” due to uncertainty in the market is not.

Finally, mortgages hardly ever contain any force majeure protections. Any relief from paying a mortgage would need to come through legal actions of state and federal government, such as that of what has taken place in Italy at this time. Nonetheless many residential mortgage providers will likely have various forbearance opportunities in order to keep your mortgage in good standing until the outbreak is contained.

This post is not intended to be comprehensive, nor does it constitute legal advice. Please feel free to contact our office if you require more specific advice, whether on real estate matters or any wider business issues. We will be available for telephonic and video conferencing consultations as well. 

By | 2020-03-18T13:02:28+00:00 March 17th, 2020|Uncategorized|0 Comments

Leave A Comment