Breaching a Lease or Contract During the Coronavirus Pandemic
By Cody McCaughan, Esq.
Businesses across the world have been impacted by the spread of Covid-19. The pandemic and its consequences have led to reduced demand, work stoppages, disruption of supply chains, downsizing, store closure, and for some businesses even bankruptcy. Countless businesses have been or will be unable to pay their rent or meet other contractual obligations. As a result, business owners are contemplating how to respond.
To address failures or delays of performance of commercial contracts due to Covid-19, there has been a significant increase in legal actions seeking to enforce or interpret Force Majeure clauses. This is because such clauses provide some of the few defenses to a delay or failure to perform on one’s contractual obligations.
Force Majeur Clauses
A Force Majeure is an event that is a result of the elements of nature, such as an earthquake or hurricane, as opposed to an event caused by human beings. It is otherwise known as an “Act of God” and often requires that the events that caused the delay or failure of performance to be “beyond the party’s control.”
Where the parties have included a Force Majeure clause in their agreement, as they often do, Florida courts will enforce the terms of the clause. Where the parties, however, have not included in their agreement a Force Majeure clause, Florida courts can still excuse performance under the doctrine of Impossibility of Performance. See Marathon Sunsets, Inc. v. Coldiron, 189 So. 3d 235, 236 (Fla. Dist. Ct. App. 2016).
Doctrine of Impossibility of Performance
In Florida, Impossibility of Performance refers to situations where the purpose of the contract has, for one party, become impossible to perform. To claim Impossibility as a defense to enforcement of the contract, courts also require that what made the performance impossible not have been foreseeable at the time of contracting. The doctrine “should be employed with great caution if the relevant business risk was foreseeable at the inception of the agreement and could have been the subject of an express provision of the agreement.” American Aviation, Inc. v Aero-Flight Serv., Inc., 712 So. 2d 809, 810 (Fla. 4th DCA 1998).
Doctrine of Frustration of Purpose
The Doctrine of Frustration of Purpose is similar to the Doctrine of Impossibility, but also distinct. See Valencia Center, Inc. v. Publix Supermarkets, Inc., 464 So.2d 1267, 1269 (Fla. 3DCA 1985). The doctrine of frustration does not apply to the impossible, but rather is “limited to cases where performance is possible but an alleged frustration, which was not foreseeable, totally or nearly totally destroyed the purpose of the agreement.” Id. (citations omitted).
As with an impossibility defense, the frustration defense requires that the fact or event at issue was unforeseeable and that it could not have otherwise been provided for in the contract. Courts are reluctant to apply the frustration doctrine to cases where, for example, the fact or event made the deal merely impractical, unprofitable, or would merely serve the purpose of releasing one party from having made a bad bargain. The doctrine, in short, has to go to the intended purpose of the contract at its inception.
What Should I Do Next?
Businesses whose contracts are being impacted by Covid-19 need to review their contracts to consider their rights and decide whether they can resolve their issues with the other party or parties by modifying their agreements or have to resort to litigation. While the defenses discussed above may seem very straightforward, their application to the endless variety of fact patterns is often complicated and requires the services of an attorney.
We specialize in representing small and mid-size businesses in leasing and other contract disputes. If you are considering breaking your commercial lease, or defaulting on your obligations under another contract, contact us at (305) 928-4190 for a no-charge consultation.