Covid-19 Defenses To Contractual Performace
Millions of us have had our worlds turned upside down from the COVID-19 pandemic. There are unprecedented job losses, countless small businesses, and large retail pillar brands shuttering forever, a contracting economy headed in a downward spiral which has left many individuals as well as business unable to pay their rent or mortgages.
Here are some of the common defenses used by businesses that are unable to meet their contractual obligations.
Many commercial leased spaces are citing force majeure. This term is defined by any unforeseeable event or disturbance like 9/11, hurricanes, or acts of God, that prevents someone from fulfilling a contractual agreement. This also falls under local law mandating the shuttering of non-essential businesses. Or a business closing their doors for the purpose of protecting the staff’s health, and not just to avoid paying rent. Courts therefore may opt not to enforce the penalty written on the lease since the closings were under a government mandate.
Another defense is that of impossibility. One example can be when one of the parties dies or becomes incapacitated, thus making the performance of the contract impossible. This ties directly into the defense of impracticability, where the ability to perform is not practical. An unforeseen event like COVID makes the performance of the contract unreasonable due to an event that couldn’t have been reasonably predicted and is out of the parties’ control.
Entering a contract in the age of COVID and want to back out? The excuse of the frustration of purpose in contract law can be used when a buyer or lessee encounters an unforeseen event. And the lessor, your landlord tries to sue for specific performance. In this case, courts will look at whether the event was foreseeable or not when the contract was signed. If the event rises to the level of unforeseeable, then the inability to perform may be excused.
Conclusion
We are in uncharted territory in the age of COVID-19 and no can truly predict how courts would rule on the default, non-payment of a lease, or breaking a contract. There has been some scant precedent in the law, but it still remains on a case to case basis in the end.
Tenants should read their leases and consult with an attorney for further advice on their commercial leases, and see what options can be explored with their landlords.
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