Contractual Obligation Webinar
Good afternoon, everyone. Thank you for joining me today. And a special thank you to the Miami Beach Chamber of Commerce for affording me this platform to talk to its membership about a very important topic, especially now that we’re coming up on April 1, and a lot of commercial lease payments are due. And landlords and tenants don’t understand how this global pandemic is going to impact contractual obligations. You know, and that doesn’t just stop at leases. I mean, this stop, this is really any contract that you have with a vendor creditor debtor, and a situation like that. I think the first point that is of crucial importance dimension is that we’re in this together, no one person is in a different situation, or a better situation. And so we should be conducting our business with a sense of compassion and empathy. Unfortunately, that’s, you know, not going to be the case across the board. And, you know, with all the assistance we’re getting from the federal, state and local governments to try to keep our businesses and protect the economy through these different disaster relief programs. It still doesn’t answer the questions as to contractual obligations. Now, in order to understand the contractual obligations, I think the first question is, are they enforceable during a global pandemic? And the short answer to that is, yes, they are. But you want to go to your contract to understand what other relief might be within that contract, or whether your contract even speaks to this issue. So you can go outside of the contract to seek relief. The first part of the analysis is, is the contract itself, like I said, and for sake of this webinar, we’re only going to talk about and consider written contracts. But I think it’s important to bear in mind that there are also oral contracts that may be enforceable if they’re not required to be in writing by law. So although we won’t touch on that a lot of the concepts are going to be the same. Right? So the contract, a good contract is one where the parties have memorialized their agreement and dictated how every situation is going to be resolved as they arise. Now, the foreseeability of an issue is going to be crucial to this analysis for purposes of this webinar. And you need to know if this issue was mentioned within your contract, because that will dictate whether it was foreseeable or not. Now, there’s also considerations come outside of that. But that’s the first layer, right? We want to know does your contract specifically stay in the event of a governmental order that interrupts business in the event of a global pandemic, which is, sounds bizarre, but we have to remember that SARS only happened a couple of years ago. And because of SARS, a lot of insurance companies, landlords for commercial spaces have started to integrate, to speak to viral pandemics. So it’s very possible that maybe not using that specific language, but talks about governmental orders that would address that issue. So let’s assume, which is I think still going to be the majority of contracts right now, that issue is not addressed. So what’s the next step? And I think the most common ly known phrase in this type of situation is force majeure. But as we’re learning through this process, there’s an educational gap as tool, understanding what that means, how it’s applied. And, and what relief does that grant a party to a contract? The first step in the written contract, you would go down to that section and you will read it because for those of you that don’t know force majeure is basically any act of God or any occurrence that is out of a party’s control, should excuse them for their obligations under a contract, right? But every force majeure clause is not written the same. And that’s increasingly becoming the case. And one that I’m seeing with some frequency is when commercial landlords are including an exception to rent payments. So the force majeure clause would say in in the occurrence of an act of God, all parties are relieved from their obligations on their contract with the exception rental payments. In other words, too bad so sad. Just pay me my rent. Doesn’t matter what’s going on.
Does the analysis stop there? No, it doesn’t. You also want to look through the contract to see if the contract speaks to what a default is, what happens in the event of default, how to cure a deal All right, because that’s going to be other timelines, and resources that are available to you to gauge how to handle this situation. Because I think we can all agree that we’re not sure when it’s going to end, but it will end. And it may be enough time for you to cure a default. So that would be a good opportunity to dive into those federal, state and local programs to see if they can assist you in curing a default. Then the next step would be to check to see if there’s any talks about a rent abatement, a rental payment can be a number of things, it could be pushing the rent payment to the end of the loan, increasing the rental payment, slightly to accommodate for a month or two of non payment. And I doubt that they would get into specifics in a contract. But it’s something that you can utilize it then reopen negotiations for amending the rental payment term, or any payment term or any contract term for this short period of time. So then after that, you know, most contracts, large contracts, at least would require some type of insurance, you would want to look into your contract into the provisions that speak about insurance to see whose obligation is it to hold the policy? What policies are they required to hold. And what we’re really looking for is business interruption insurance. Now, again, that doesn’t stop for purposes of business interruption insurance at the analysis of your contract, but also your your insurance policy, you’re going to want to go to your insurance policy or contact your insurance broker to find out if this situation that we’re currently in, covered under that section of your policy. You know, there’s there’s certain case laws, case law out of Florida, where insurance companies have been successful in arguing their way out of business interruption, coverage for certain situations, and this may be one of them. I think there’s a litany of litigation that comes out of this situation that we’re all going to learn from. Aside from that, you’re also going to want to understand what the contract that you can rely upon. And there’s the force majeure, which is similar to the doctrine of impossibility where we spoke about force majeure. And possibility, at one is a little bit difficult to argue in the current situation, because like this, this is more than likely going to be a temporary situation. And the ability, depending on the nature of your contract, and the obligations of your contract may be impossible, it might not be impossible to act forever, right. So if this is a contract for five years than this is really a temporary, and that may or may not be enough of an issue for you to rely on that doctrine. Doctrine, in essence, says that when it is impossible to perform, it is no longer enforceable. So it’s really understanding what your contract requires, and is truly impossible. At any point. Also, you have to take into consideration we’re in a virtual age, it can be conducted with third party vendors, there’s a litany of ways that it’s possible for you to conduct or come through with your obligation that will take you out of the protection of the doctrine of impossibility, next we have the doctrine of frustration, this one, depending on the nature of your contract, may be more likely avenue for relief under a contractual obligation. And the doctrine considers the underlying purpose of the contract being frustrated. Um, so an example of that would be if, if you rented an auditorium, right and this auditorium, you are going to host an event or you are inviting all these people. That obviously cannot happen because of the orders that are currently in place that has completely frustrated the purpose of your contract. This would be a good opportunity to go to your landlord and advise them of the situation. I’m sorry, not your landlord but the other party and advise them of the situation and see if you could come to an alternate
agreement in lieu of terminating the contract. But this doctrine in that particular situation may have afforded you the opportunity to terminate it in its entirety. And if you put down $1 downpayment may even allow you to get that downpayment back there’s also you know, for creative persons and parties to contract. This is probably more useful if you have a brick and mortar or you know, a physical location that has been forced to be close his, you know, an eminent domain or conduct argument. Particularly, there’s a theory called inverse condemnation, where it’s not a full taking of the property. But agency with the power to execute eminent domain has basically prevented you from the use of that property. This is going to be an argument that most land owners are gonna turn back to the government and say, Look, you know, you guys force us to close, we understand the situation, but we need some relief. So this is, you know, something that you want to utilize to ask what, what actions are being taken to mitigate damages, so that, you know, the other party can understand what type of set off they can expect. And this is a good place to start negotiations, or each party understands, okay, well, I can get this from this program. So that’s going to reduce my exposure. And so this is what I can offer you. And then that way, not one per person is carrying the burden during these very difficult times. And again, I think, I think that, but the essence of, of, of the webinar, and the reason I wanted to speak to everybody was so that everybody understood their obligation and knew what to look for in their contracts. Again, I want to reiterate that this, this shouldn’t be taken an opportunity to walk away from your contracts, but more so to find a way or to work with the party’s you’ve, you’ve already have a contract and make sure that we’re all doing our part to keep the economy strong, and so that we can bounce back from this quickly. I wanted to provide you my email address. It’s Arturo, AR t u r. Mo at Trembley, law.com. We also have several resources on our firm website trembly law.com, backslash Coronavirus, where we’re keeping the public informed as new programs rollout new laws get put into place, and then anything else that we’re finding to be a constant, a common issue across the board for business owners can address those as quickly as possible. Thank you again, for being here today and I appreciate your time. Take