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Real Estate and Construction

Lease Obligations

A: 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. 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.

 

A: 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.

A: 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.

A: 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 Ohio’s Governor and Director of Health to bolster their arguments of force majeure, impossibility of performance, and frustration of purpose.

A: 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.

A: 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.

Ohio’s Executive Order 2020-08D for Commercial Real Estate Landlords and Lenders, Small Business Tenants

A: Ohio Governor Mike DeWine signed Executive Order 2020-08D on April 1, 2020, which addresses commercial evictions and foreclosures in Ohio during the COVID-19 crisis. The purpose of the order is to provide relief to small business tenants and commercial real estate borrowers who may be feeling the economic impacts of the COVID-19 pandemic.

The fact that this is an executive order is a bit misleading. The order contains requests rather than demands. Governor DeWine wishes to combat the potential destabilizing impact commercial evictions and foreclosures could have on local economies during Ohio’s stay at home order. Executive order 2020-08D applies to commercial tenants and borrowers who face “financial hardship due to the COVID-19 pandemic.”

The order contains the following requests:

  • Landlords are requested to suspend rent payments for small business commercial tenants in the State of Ohio who are facing financial hardship due to the COVID-19 pandemic for at least ninety (90) consecutive days.
  • Landlords are requested to provide for a moratorium of evictions of small business commercial tenants for a term of at least ninety (90) consecutive days.
  • Lenders are requested to provide commercial real estate borrowers, who have a commercial mortgage loan for a property in Ohio, an opportunity for a forbearance term of at least ninety (90) consecutive days for said mortgage as a result of financial hardship due to the COVID-19 pandemic.

A: Landlords are requested (not required) to suspend rent payments for small business commercial tenants in the State of Ohio who are facing financial hardship due to the COVID-19 pandemic for at least ninety (90) consecutive days. Landlords are also requested to provide for a moratorium of evictions of small business commercial tenants for a term of at least ninety (90) consecutive days.

A: Lenders are requested to provide commercial real estate borrowers, who have a commercial mortgage loan for a property in Ohio, an opportunity for a forbearance term of at least ninety (90) consecutive days for said mortgage as a result of financial hardship due to the COVID-19 pandemic.

A: The order explicitly states that it shall not do any of the following:

  • Negate the obligation of a small business commercial tenant to pay rent.
  • Relieve a commercial real estate borrower of its obligations to make loan payment.
  • Suspend any state or federal law.

A: Because the actions contained in the order are requests rather than demands, there are no penalty provisions for failure to abide by the order.

A: The order remains in effect through July 1, 2020, unless modified or rescinded by Governor DeWine prior to that date.

A: Ohio Governor DeWine and Lieutenant Governor Jon Husted have continually stated during their daily press briefings that the intent of Executive Order 2020-08D is to encourage lenders to work with borrowers and in turn, landlords work with tenants, to reach equitable payment options and temporary solutions during the COVID-19 pandemic. Any tenant or borrower who is currently facing financial hardships due to the COVID-19 pandemic should request assistance from their landlord or lender.

A: Governor DeWine previously signed House Bill 197 (HB 197), which tolls numerous temporal deadlines set to expire between March 9, 2020 and July 30, 2020. The tolling order may allow landlords and lenders to delay action that otherwise would have been required during this time by the Ohio Rules of Civil Procedure.