Articles Posted in Covid-19

The COVID-19 pandemic has affected almost all business sectors in South Florida. Commercial rental property is no exception. The shutdown of non-essential businesses in Miami-Dade and Broward Counties has left many commercial tenants severely restricted or completely unable to generate revenue. The current circumstances have also placed great financial pressures on commercial landlords, as well. For tenants and landlords facing major issues, there may be alternatives to eviction. These may include things like workouts or lease restructuring, among other possibilities. To discuss your options and what makes the most business sense for you, be sure you are working with an experienced South Florida commercial real estate attorney.

As therealdeal.com noted, several South Florida commercial landlords are working with their tenants to keep those tenants out of the eviction process and in the spaces they currently occupy. Two South Florida-based landlords offered their tenants options including rent deferments, rent forbearances and partial rent payments.

Landlords have several options if they have tenants impacted by COVID-19-related restrictions that are having difficulties paying rent. A landlord may declare a tenant in default and immediately begin pursuing legal action against the tenant and any guarantors, the landlord can declare a tenant in default but hold off on taking any enforcement action or the landlord can negotiate an amendment to the tenant’s lease.

The unprecedented global cessation caused by the COVID-19 pandemic will have lasting effects on companies worldwide. COVID-19 and the government regulations to control the spread thereof have caused an increasing number of businesses to suspend operations and close down facilities, resulting in substantial losses. Any business owner with a commercial insurance policy that has suffered losses due to COVID-19 should have their policy reviewed immediately by an attorney to determine if they can recover their losses through business interruption insurance. Because insurance companies will attempt to deny claims due to the policy language or exclusions contained therein, it is critical for business owners to understand their policy rights, as well as current and future legal developments in the insurance sector relating to COVID-19, to ensure they are afforded the most protection possible.

I. Business Interruption Insurance and Litigation

Business interruption insurance covers business income that is lost or expenses incurred in the event of a stoppage in business operations due to a disaster, such as hurricanes, earthquakes, fire, or pandemics such as COVID-19. In many cases, business interruption insurance will also cover losses caused by government action, otherwise known as civil authority coverage. While each policy is different, business interruption insurance may cover lost profits, fixed costs, expenses associated with moving to a temporary business location, ingress/egress costs, employee wages, and loan payments, among other things. Each business’ coverage will be determined on a case by case basis, and therefore it is imperative that the policyholder understand their policy, including any time limitations or notice requirements thereunder required to trigger coverage.

On February 19, 2020, the Small Business Reorganization Act (the “SBRA”) went into effect, shortly preceding the unprecedented blow to the global economy caused by the coronavirus (COVID-19) pandemic. The coronavirus, as well as government regulations to control the spread of the virus, have forced both public and private enterprises to discontinue operations, shut down facilities, and in some cases have caused companies to close their doors permanently. Thus, businesses, particularly small businesses, are now struggling and unable to pay their creditors, and will need to rely heavily on the SBRA or other alternatives to bankruptcy in order to survive in these uncertain times. This article will discuss in detail what the SBRA is and its benefits for small businesses, the related Coronavirus Aid, Relief, and Economic Security Act, as well as several alternatives to bankruptcy that could prove to be more affordable and efficient for small businesses.

I. What is the Small Business Reorganization Act?

The SBRA was signed into law on August 23, 2019 and was intended to simplify the Chapter 11 bankruptcy process and offer new methods for small businesses to successfully reorganize. Prior to the SBRA, the primary options for struggling small businesses filing bankruptcy were limited to either Chapter 7 or Chapter 11, both of which have their drawbacks. A Chapter 7 bankruptcy is less costly, but involves the debtor’s assets being liquidated by a trustee to pay creditors, rendering the business unable to survive and retain control of its operations. Conversely, a Chapter 11 bankruptcy permits the debtor to retain control of its operations and restructure its debts through a court-approved plan, but the extensive court oversight and stringent requirements associated therewith can be too expensive for small businesses.

No business, neither big nor small, has proven to be immune to the rapidly increasing threat of the coronavirus (COVID-19) that has significantly disrupted commercial operations all over the globe. In response to this pandemic, public and private enterprises have implemented procedures to slow the spread of the coronavirus, including closing facilities and ceasing operations. As a result, businesses are now evaluating their options concerning performance of their contracts. Accordingly, it is critical for these businesses to be aware of the various defenses available to potentially excuse nonperformance of their contractual obligations in these uncertain times. One of these defenses is to invoke a force majeure clause contained in a contract.

A force majeure clause in Florida is a standard contractual clause that permits parties to allocate the risk of loss if performance becomes impossible or impracticable due to “force majeure events,” such as acts of God, hurricanes, earthquakes, epidemics, terrorism, government acts, labor strikes, and lock-outs, among other things. The Florida Supreme Court, in holding that a hurricane constituted and act of God excusing a party’s performance under a contract, defined such an act as follows:

An act of God, such as will excuse nonperformance of a legal contract, must be an act or occurrence so extraordinary and unprecedented that human foresight could not foresee or guard against it, and the effect of which could not be prevented or avoid by the exercise of reasonable prudence, diligence, and care or by the use of those means which the situation of the party renders it reasonable that he should employ.[1]