June 16th, 2021
Question: Let’s say that you are a retail commercial tenant who was put out of business by the Governor’s closure order due to the COVID-19 pandemic and have since been financially unable to rehire, restock, or reopen your business. Furthermore, the landlord is also threatening to sue you for back rent. What defenses are available to you as a commercial tenant regarding a landlord’s claim for back rent?
Pete’s Answer: Cal Civ.Code § 1511 provides that “The want of performance of an obligation, in whole or in part, is excused . . . when it is prevented by a superhuman cause, or by act of the state . . . unless the parties have agreed to the contrary.” Hence when the leased premises of businesses are shut down by the Governor’s order, or due to the COVID-19 virus making times extremely difficult to operate financially, commercial tenants may be excused from rental obligations until their businesses are back on their financial feet and are able to operate, if ever.
Presently, commercial tenants may have to pay 25% of the rent which became due from and after September 1, 2020, to avoid eviction if necessary, effective after July 1, 2021, upon receipt of a notice to pay rent. If sued, commercial tenants may nonetheless successfully assert affirmative defenses of “frustration of purpose” or “impossibility of performance” to escape or reduce liability for owing back rent.
However, many forms of commercial leases may contain certain clauses which state that a tenant’s obligation to pay rent is not excused by acts of God or state ordered moratoriums. Therefore, in such cases, affirmative defenses of “frustration of purpose” or “impossibility of performance” may not be feasible. In negotiating an exit strategy for a stressed leased business, it is important to use legal counsel familiar with these COVID-19 rules.
Disclaimer: This article is for general legal education only, and should not be applied to any real-life situation without the advice of independent, qualified legal counsel.
About the Author: Attorney Pete Wittlin, is a 38-year southern California real estate law litigator and counselor, who may be reached at his law office in Irvine, California, at telephone (949) 430-6366. Pete is the 36-year Editor of the “Real Estate Law Update,” which he writes monthly for the 300+ members of the OCBA’s Real Estate Law Section, summarizing important real estate appellate case decisions, and annually legislative developments. He is also the section’s annual April guest speaker on the year’s “Top 10 Real Estate Law Decisions,” and is a former educator and frequent public speaker to area brokerage firms on topics of legal interest to their members. He may be also be reached at email@example.com.