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Contract law during COVID-19: Are commercial leases still valid?

On Behalf of | Oct 12, 2020 | business law

The current coronavirus pandemic has impacted every facet of our lives. In addition to changes in how we socialize, the pandemic has also had an impact on our finances. This has made it difficult for many to pay their bills,

Are contracts still enforceable?

In general, yes, contracts finalized prior to COVID-19 are still enforceable. However, hurdles are present when it comes to enforcement of commercial leases. In New York, for example, landlords are not allowed to move forward with residential or commercial evictions through August 20, 2020. As a result, it may be wise for both parties to have open negotiations and attempt to find a compromise.

A failure to come up with a compromise could result in unforeseen consequences. A tenant could face financial liability either through the loss of a security deposit or could implicate those who were used in standby letters of credit. Keep in mind, just because the tenant may be able to invoke protections to keep from covering a debt, any guarantors may not have the same level of protection. In contrast, a landlord could face allegations of violating regulations if they move forward with eviction too soon or do not follow proper protocol.

Both the landlord and tenant should prepare for the potential invocation of a force majeure clause. These clauses, if included within the contract, generally allow for the excuse of the expectation of a party to fulfill their obligations as outlined within the contract if they are unable to do so due to an unforeseen external event.

The full impact will depend on state and local laws as well as the details included within the contract in question.