MarchDarrell Clay 23, 2020

COVID-19 (coronavirus) has brought with it a virtual tidal wave of legal questions. An important one: may a tenant invoke a force majeure (French for “superior force”) clause to avoid paying rent to a landlord in the event of a government lockdown or quarantine? Unfortunately, the answer is, “it depends.” Interpretation and application of any contractual force majeure provision is highly dependent on the particular terms of the clause in question and the circumstances causing a disruption of normal business activities. Other contractual performance doctrines may come into play, such as impossibility of performance and frustration of purpose. Both doctrines refer to occurrences or causes beyond one’s control, and therefore without fault.

A threshold question is whether force majeure applies as a result of COVID-19/novel coronavirus. One recent article observes that “a force majeure clause could cover the COVID-19 pandemic if it includes specific public health-related language, such as ‘flu, epidemic, serious illness or plagues, disease, emergency or outbreak.’” “Acts of government” may also trigger force majeure, but absent other reference to such health-related events, the catch-all phrase “Acts of God” often included in a force majeure clause may not apply. As another article aptly puts it: “An ‘Act of God’ alone may be too broad to excuse a party from performance.” Most courts narrowly interpret force majeure clauses, and that level of strict scrutiny may pose a real challenge where the clause does not specifically mention something relating to public health events.

On the other hand, Ohio, like many other states, has public health laws that may be useful in establishing force majeure/impossibility/frustration. Ohio law provides that “The director of health shall investigate or make inquiry as to the cause of disease or illness, including contagious, infectious, epidemic, pandemic, or endemic conditions, and take prompt action to control and suppress it.” Another Ohio law prohibits any person from violating “any rule the director of health or department of health adopts or any order the director or department of health issues under this chapter to prevent a threat to the public caused by a pandemic, epidemic, or bioterrorism event.” Violation of an order of the Director of Health is punishable as a second-degree misdemeanor.

There are only a handful of reported cases that construe Ohio’s laws regarding orders by the Director of Health, and none deal with large-scale pandemic/epidemic events such as the COVID-19 virus. However, both the Ohio Governor and the Ohio Director of Health have issued an official Stay At Home” Order, mandating that all non-essential business and operations must cease, except for specifically-permitted Essential Businesses and Operations. Therefore, tenants who are not engaged in Essential Businesses and Operations seemingly may have a good argument that rent should be abated during the time period that this Order is in effect. There will undoubtedly be litigation over these issues in the months and years ahead because this Order has required the closure of numerous retail and service businesses, cutting off cash flow to these tenants and in turn compromising their ability to pay rent to their landlords.

At the same time, there is case law holding that these type of closure orders do not constitute force majeure so as to excuse a tenant’s performance under a lease. For example, in Aukema v. Chesapeake Appalachia, LLC, landowners brought an action seeking to declare that certain oil and gas leases had expired and were not extended by force majeure. Defendants argued that a state directive that placed a moratorium on hydraulic fracturing constituted force majeure that excused lack of actual performance, and thereby permitted automatic lease renewal (which was tied to actual drilling operations). The court rejected this argument, noting the state directive permitted alternative drilling operations that could have been performed by defendants so as to trigger automatic lease renewal. The court also rejected claims that the state directive frustrated the lease’s purposes, reasoning that the frustration doctrine requires an event that is unforeseeable, and the directive in question was foreseeable when the leases were “signed, renewed, and assigned.”

Another relevant case, though not involving a commercial lease, is Phelps v. School Dist. No. 109, Wayne County. There, the question was whether a school district had to make payments to a teacher who was under contract with the school board when her school was closed for two months “by order of the state board of health on account of the influenza epidemic . . . .” The trial court sided with her and awarded her $100, representing two months of pay. In upholding this judgment, the Supreme Court of Illinois observed that the move to close the building did not alter the rights of the parties to the contract. Therefore, it is prudent to require a provision in the contract that specifically exempts one from liability in the event of an epidemic or pandemic.

A more limited application of contractual frustration is seen in Colonial Operating Corp. v. Hannan Sales & Service. There, the parties entered into a lease under which the tenant was permitted to use the premises only for an automobile showroom. Five years after entering into the lease, the Office of Production Management of the United States issued a directive prohibiting the sale of model year 1942 automobiles or any automobiles that had been driven less than 1,000 miles. When the landlord sued to collect unpaid rent, the tenant claimed that the OPM order had frustrated the purpose of the lease, thereby discharging the tenant’s obligation to pay rent. The New York Supreme Court, Appellate Division, held that the trial court erred in finding that the lease’s essential purpose had been frustrated, relying on the fact that the OPM order did not completely “prohibit, ban or frustrate the sale of all automobiles in the demised premises.” Rather, the appellate court noted, the OPM directive still permitted sales of other automobiles, including sales to government entities and other various “eligible” parties. Further, the OPM directive did not prohibit the sale of “second-hand automobiles and automobile accessories . . . .” This case reinforces that there must be a fact-specific inquiry into how a government order specifically impacts the tenant’s operations of its leased premises.

Make no mistake: In Ohio alone, there will be hundreds of millions of dollars at stake on the issue of rent suspension due to the effects of COVID-19. Ohio tenants will have the “benefit” of the “Stay At Home” Order and other orders issued by the Governor and the Ohio Director of Health to bolster their arguments of force majeure, impossibility of performance, and frustration of purpose.

Based on the examples above, success may not be assured for tenants invoking these principles in defense of eviction and back-rent claims by landlords. Meanwhile, landlords must still make mortgage payments, pay insurance premiums, and incur operating expenses. One can envision a scenario in which both landlords and tenants become insolvent and are unable to pay debts in the ordinary course. Payments in response to claims under business or rent interruption insurance policies may have the potential to cover some of these cash flow gaps, but it is becoming fairly clear that insurers are taking the position that such policies do not cover claims arising from COVID-19 losses. (A bill was introduced and quickly withdrawn recently in New Jersey which would have compelled insurers to honor business and rent interruption claims due to COVID-19. Read about that here.) It would appear that only the federal government has the resources to craft a rescue of those impacted by the loss of rental income in this crisis.

Darrell A. Clay  is a partner at  Walter | Haverfield  who focuses his practice on labor and employment and litigation . He can be reached at  dclay@walterhav.com or at 216.928.2896.
Jack Waldeck is a partner at  Walter | Haverfield  and the chair of the real estate team. He can be reached at jwaldeck@walterhav.com or at 216.928.2914.

Rick AmburgyMarch 23, 2020

Ohio Governor Mike DeWine’s “Stay At Home” Order, which lasts until Monday, April 6, 2020, has shut down all Ohio non-essential businesses in a further attempt to control the spread of COVID-19 (coronavirus).  What does this mean for Ohio’s owners, design professionals, contractors, subcontractors, and suppliers?  First, most construction in Ohio is not shutting down, but businesses that choose to remain open must implement the necessary steps to ensure the safety of employees, contractors, and other invitees to the project site.

Section 9 of the Order identifies “Essential Infrastructure” as an exemption to shutting down non-essential businesses. Specifically, “individuals may leave their residence to provide any services or perform any work necessary to offer, provision, operate, maintain and repair Essential Infrastructure.” This includes, among other things, general construction, construction required in response to this public health emergency, hospital construction, construction of long-term care facilities, public works construction, school construction, essential business construction, and housing construction.  The Order also states that the Essential Infrastructure exemption “shall be construed broadly to avoid any impacts to essential infrastructure” as the same may be “broadly defined.” Further, the Order includes critical trades as Essential Businesses and Operations, which include, among others, building and construction tradesmen and tradeswomen, plumbers, electricians, operating engineers, HVAC contractors, and painters.

Owners, design professionals, contractors, subcontractors, and suppliers who choose to continue construction operations during the shutdown must proceed with caution.  Safety measures must be both documented and implemented in order to protect against the spread of COVID-19. Where possible, remote and virtual work as well as meeting capabilities must be utilized, and all parties must continue to follow the recommendations of the Centers for Disease Control and Prevention (CDC), Occupational Safety and Health Administration (OSHA), and the Ohio Department of Health, which include, among other recommendations:

  • Social distancing of at least six feet between individuals performing work at the project site
  • Frequent disinfecting and cleaning of all surfaces and equipment
  • Keeping only the required staff necessary to perform the work in accordance with the project schedule
  • Discontinuing use of community drinks or food
  • Discouraging hand-shaking and other contact greetings
  • Instructing workers to clean their hands often with an alcohol-based hand sanitizer that contains at least 60-95% alcohol, or wash their hands with soap and water for at least 20 seconds. Soap and water should be used preferentially if hands are visibly dirty
  • Providing soap and water and/or alcohol-based hand sanitizers to workers
  • Discouraging congregation at lunch or breaks
  • Discouraging the sharing of tools
  • Prohibiting the sharing of personal protection equipment (PPE)
  • Utilizing disposable gloves where appropriate
  • Conducting routine environmental cleaning
  • Encouraging workers to take temperatures at each project site
  • Requiring any workers exhibiting any symptoms to leave the project site and/or to stay home if sick
  • Requiring respiratory etiquette, including covering coughs and sneezes
  • Maintaining records, updates, and communications in connection with the processes and procedures implemented to comply with the foregoing regulations

Each party should read and understand their construction agreement, especially those provisions relating to notification and documentation requirements and entitlements to additional time or monies.  The success of every project depends upon the prompt and transparent communication and cooperation among owners, contractors, subcontractors, design professionals, and suppliers.  Every party must work together to ensure the safety of the project and to address the potential time delays and costs associated with the ongoing fight against the spread of COVID-19.

Rick Amburgey is an associate at Walter | Haverfield who focuses his practice on construction law, financial services and commercial real estate. He can be reached at ramburgey@walterhav.com or at 216-619-7843.

March 30, 2020 

If you need documents notarized, Walter | Haverfield is here to help. We are certified through the Ohio Secretary of State to notarize documents online for individuals in and outside the State of Ohio. No in-person meeting is necessary. Details on what is needed in order to participate in an online notary service are below. The process is also described below.

Participant Requirements:

  • Access to the following: a computer, internet and webcam
  • Driver’s license or passport
  • Digital version of documents that need to be notarized

E-Notary Process (takes about five minutes):

  • A link to join the e-notary process is sent to the participant
  • Once a participant clicks on the link, the e-notary software is launched online and a credential analysis begins
  • During the credential analysis process, the participant uploads his/her driver’s license or passport
  • The software analyzes the license/passport and asks a series of questions to verify one’s identity
  • An e-signature is adopted, and the Walter | Haverfield notary digitally applies the seal and signature to the document(s)
  • An email is then sent to the participant with a copy of the notarized documents

Ohio is one of 36 states that allows documents to be e-notarized. In Cuyahoga County, there are about two dozen e-notaries.

Please note that online notary services are not available for depositions.

We look forward to maintaining our strong working relationship with you during this time and keeping in close contact via phone, email or video conference. Should you need our online notary service or have questions, please email us here.