BEVERLY HILLS, CALIFORNIA – TLD Law Partner Roy Jimenez won a seven day trial where the jury reached a verdict in favor of a California landlord versus a luxury jewelry store. The experienced trial attorney presented strong arguments to the jury, which found overwhelmingly that the hotel was to be evicted, despite claims that they could not open due to the coronavirus pandemic and the Force Majeure clause of the lease agreement.
The jury’s verdict resulted in a judgement for possession for plaintiffs against the defendant, and plaintiffs’ costs and attorney’s fees. This ruling is significant for landlords and tenants alike, and sets precedent in favor of landlords for future eviction cases.
Over the past, nearly two years, precautions against the coronavirus have continued the threat of businesses being unable to meet the obligations of their leases, loans, or other contractual obligations.
In this unprecedented and uncertain time for landlords and tenants, a term on the top of everyone’s mind is “Force Majeure Clauses.” California courts might approach “force majeure” clauses (or lack thereof) in commercial leases or loan documents during this period.
“Acts of God”
“Force Majeure” is sometimes more commonly referred to as “Acts of God.” Not to be taken literally, this label applies when, whether man-made or not, there is an insurmountable interference with a party’s ability to meet its contractual obligations. This interference must be no fault of the non-performing party and unpreventable even after exercising all necessary diligence and care.
Agreements Without a Force Majeure Clause
Section 1511 of the California Civil Code excuses performance of a party’s contractual obligations “when such performance or offer is prevented or delayed by . . . operation of law” or by an “irresistible, superhuman cause.” In other words, this section acts as a default “force majeure” clause for a contract without one. Therefore, a party may still be able to take advantage of force majeure protections even if the agreement does not contain a “force majeure” clause.
To do so, however, the non-performing party must be able to prove that (1) the force majeure, in this case the coronavirus pandemic, is responsible for the inability to pay, and (2) it was unforeseeable. While this global catastrophe was almost certainly unforeseeable, a business that was already suffering might not be able to use the -pandemic as an excuse without proving a direct connection to its failure to make rent. Additionally, any burden resulting from the -pandemic must be more than an increase in expense or financial difficulty. The breach must result from circumstances that are “extreme and unreasonable.” This means the calculation may vary depending on the tenant.
Agreements with a Force Majeure Clause
When an agreement of any kind does contain a “force majeure” clause, California courts have traditionally given the clause a strict interpretation, honoring the way the parties drafted the clause. “A force majeure clause is not intended to buffer a party against the normal risks of a contract…. A force majeure clause interpreted to excuse the buyer from the consequences of the risk he expressly assumed would nullify a central term of the contract.” [Citation?] Courts have -held that when parties exclude certain “acts of God” or fail to include certain events within a list of permissible excuses, the breaching party will remain liable.
California courts’ tendency to honor force majeure clauses may extend even to a lease or loan provision exempting obligations to pay from the clause’s protection. A court held in an unpublished opinion that a term reading “Force majeure shall not, however, excuse the obligation of a party to make any payments required under this Agreement” precluded the application of a force majeure defense to the payments required.
These Are Uncertain Times
In either case, whether relying on Section 1511 or a force majeure clause, an extreme or unreasonable difficulty or expense might justify excusing or delaying lease obligations.
Also of note, while California Civil Code 1511 allows parties to contract around the excuse of “irresistible, superhuman causes,” delay or failure to honor an obligation resulting from operation of law will be excused “even though there may have been a stipulation that this shall not be an excuse.” This forces a court to have to evaluate how much responsibility falls on the pandemic itself and how much rests with the government’s reaction.
Given the uncertainty in all of this, parties on either side of a lease and/or loan documents would be best served by being proactive and communicating how the coronavirus pandemic and its accompanying restrictions are affecting their businesses and their properties. Likewise, parties entering into an agreement should address possible COVID-19 protections from the outset. By attempting to work out (reasonably and fairly) how this world-changing event will affect an agreement before a dispute lands in front of a judge, parties can attempt to avoid much of the unpredictability that will surely accompany pandemic-related litigation.
TLD Law congratulates Mr. Jimenez on his successful verdict. To learn more about Mr. Jimenez and his experience as a trial attorney, please visit tldlaw.com/attorney/roy-jimenez/