Client Alert: COVID-19 – Real Estate Lease and Contract Enforcement in New Jersey

The COVID-19 pandemic has impacted many industries across the U.S. economy. Businesses that lease their premises and property management companies are among those hit hardest by the loss of income and the uncertainty associated with this crisis situation. Failing to meet contractual obligations could pose legal difficulties for property management companies and tenants alike. Here are some key points to keep in mind when dealing with contract performance during the coronavirus pandemic.

Go Over Your Contracts

Taking a careful look at your lease and property management contracts is the first step in determining your potential liability for issues caused by COVID-19. If your contract contains a force majeure provision, you are likely to be protected against financial liability for any failures to provide leasing or property management services that result from restrictions put in place because of the current pandemic. Additionally, these provisions may release you from some financial responsibility if you cannot make lease payments during this time.

What is Force Majeure?

Force majeure clauses are designed to protect companies against failure to fulfill their contracts because of some general or enumerated events, which may include some or all of the following:

• Acts of God, including major storms
• Strikes or lockouts
• Declarations of war
• Pandemics or epidemics
• Fires
• Governmental actions on the federal, state or local level

These Events Have a Few Things in Common:

• They are outside the control of the contractor.
• They cannot usually be predicted.
• They are likely to delay or prevent the completion of contracted work.

If your lease contract includes a force majeure clause, you may be able to avoid financial responsibility for issues that arise because of the direct or indirect effects of the COVID-19 pandemic. It is important to consult with a qualified and experienced contract lawyer to determine whether your contract contains a force majeure clause and whether your contract is enforceable in the current situation.

Other Provisions in Your Contracts

Even if you do not have a force majeure clause in your contract, you may still not be liable for problems caused by COVID-19. Depending on the way your contract was written, you may not be liable for leasing issues that are the direct result of the COVID-19 outbreak. Two of the most commonly used legal defenses against breach of contract are the doctrine of impossibility and the doctrine of frustration of purpose:

1. The doctrine of impossibility is used as a defense in breach of contract cases and states that one party could not fulfill the obligations under the contract because it was objectively impossible. This doctrine was established in 1950 by the New Jersey Supreme Court in Duff v. Trenton Beverage Co., which established the practical idea that if a contract cannot be fulfilled for reasons outside the control of the contractor and that could not have been reasonably predicted, the contract itself is unenforceable.

2. Under New Jersey law, the frustration of purpose doctrine applies in cases when a change in circumstances renders the reason for the contract moot and worthless. This was established in June 2013 with the case JB Pool Management LLC v. Four Seasons at Smithville Homeowners, in which a pool management firm sued a condominium association for breach of contract because the pool was closed for more than seven months to deal with mold remediation. The Appellate Division of the Supreme Court of New Jersey determined, however, that the frustration of purpose defense must be brought up as an affirmative defense rather than identified at a later time. This can prove useful for property owners who do not need certain contractually agreed-upon services for the duration of the pandemic. It can also provide some relief for business lessees who have been deemed non-essential and who cannot provide services or generate revenues to cover their overhead costs because of the coronavirus outbreak.

Touching base with an attorney experienced in business law is typically the best first step toward determining your rights and responsibilities for contracts assumed before the COVID-19 pandemic began in the United States.

Taking the Right Steps to Manage Contracts During NJ COVID-19 Pandemic

Whether you are a landlord seeking payment or a tenant suffering financial issues during the pandemic, you should schedule an appointment with your contract attorney to determine how to proceed. Identifying contracts that may fall under the doctrines of impossibility or frustration of purpose or under the category of force majeure is essential to ensure the best outcomes for your situation. Working with a law firm that represents businesses and property owners is an important step in the right direction for protecting your rights. These legal professionals can help you to avoid issues with leasing and property management contracts during the COVID-19 pandemic.

The Di Lauri & Hewitt Law Group is committed to the most practical solutions for our clients in New Jersey. We work with you to determine the best options for your situation and to promote the best outcomes for your legal issues. If you need the assistance of an experienced and knowledgeable contract attorney, give our team a call today at 973-354-5783. We are here to serve you during the COVID-19 pandemic. We look forward to the chance to help you navigate this crisis and to provide you with the best counsel now and in the future.