ROBERT I. LEVY

Attorney & Counselor at Law - A Professional Corporation

(510) 465-0025

Business Law

COMMERCIAL LEASE OBLIGATIONS IN THE COVID-19 ERA

Business Law, General Information, Real Estate Law

The economic affects of the COVID-19 Pandemic are currently immeasurable, and will profoundly impact all of us for quite some time, even in ways that we cannot today appreciate or fully comprehend.  While the Coronavirus Pandemic and Stay in Place Orders remain in affect, many, if at not all of us, will be scurrying to address short and long-term issues prompted by the Pandemic and the lengthy Stay in Place Orders.

Most, if not all businesses have been and will continue to be adversely impacted by both the Pandemic itself, as well as the Stay in Place Orders throughout the State of California.  Many of you are parties to a contract or lease in which either (1) you are financially unable to perform your obligations, partially or entirety, or (2) because of the Stay in Place Order(s), you cannot either perform on the contract/lease, or reap the benefits of the contract or lease.  This article will address the unique affects that the Coronavirus Pandemic and the Stay in Place Orders have on commercial leases, discuss the legal issues, and potential strategies in dealing with landlords and tenants during these stressful times.  While this article is directed toward leases, many of the same principles impact dealing with commercial contracts in general.

Presently, in California, there are state and county Orders, staying or prohibiting evictions for as much as 90 days from the date of the applicable order.  It is fair to say that there is a high probably that those Orders may be further extended.  Many of the California courts are presently closed and are not accepting new filings. Further, for many businesses, the stay at home orders caused by the Coronavirus prevent commercial business from using or even accessing their businesses, which raises the question as to what impact the Stay in Place Orders may have on a commercial tenant’s duty to pay rent while the Stay in Place Orders are effective.  Those tenants that cannot access their business, are unable to produce revenue sufficient to enable them to pay their rent (and other obligations) and are unable to reap the benefits of the lease.

From the landlord’s perspective, until the evictions’ moratoriums expire or are repealed, even if they wanted to remove a tenant for non-payment, they are unable to do so.  And even if they could evict an existing tenant, it might be wise to reconsider evictions as a strategy except in certain narrow circumstances.  If a commercial landlord has a tenant who historically has been a reliable tenant, but is now unable to pay because the Stay in Place Order temporarily prevents the tenant from operating their business, the landlord may not want to evict that tenant, even if they could.

Similarly, without question, after the Stay in Place Orders are lifted, many business tenants are not going to be able to sustain the record high rents that were negotiated prior to COVID-19.  Again, if a landlord has a tenant who historically has been a reliable tenant, but the tenant will require a modest to substantial rent decrease in order to sustain the tenancy and business, the landlord will be wise to consider the concession.  If the tenant left or was evicted, in the current environment, who would the landlord realistically be able to bring in as new tenant, at what price, and how long will the space be empty without any incoming rent, before finding a replacement tenant?  Based on present projections, it could very well be years before a new tenant is found.

There are a variety of legal principles in California which may be a basis for a California tenant to avoid or suspend the duty to pay rent.  I will speak of a few of those principles in a non-exhaustive function, just to make you aware of the various doctrines.  If any of these principles appear of interest to you, you will have to do some research or call me to see if they might apply to your individual circumstances.  All of these doctrines are going to turn on the specific facts in a case.

Force Majeure

Many commercial leases and contracts have force majeure provisions, which state that if there are certain acts of god or possibly government that impact the tenant or landlord’s duty to perform, that may be a basis either to suspend or relieve the duty to perform under the contract/lease.  These provisions are typically self-defining.  They may or may not be applicable to a viral pandemic and/or the Stay in Place Orders.  Even if there is a force majeure provision, and even if it specifically addresses pandemics or viruses, there are still going to be important questions that need to be answered, such as whether there is causation between the virus/pandemic and a tenant’s inability to perform on the contract/lease, and other disputes as to whether a viral pandemic or county or state order to stay at home would trigger the remedies set forth in the force majeure provision.

Frustration of Purpose

Under the doctrine of frustration of purpose, if an unforeseen event frustrates the very purpose of the lease (or contract) for both parties, it may terminate or possibly suspend that parties’ duties to perform under the lease or contract.  There are cases in California that state that if a governmental action prevents a tenant from using the leased premises for its principal purpose, the duty of the tenant may be terminated.

Impossibility

Similarly, under the doctrine of impossibility, if some event causes an impossibility to perform on a contract (including a lease), including governmental intervention or a “superhuman” cause, that “impossibility” may relieve or suspend performance on that contract/lease.  Like the other legal principles discussed above, there are going to be questions such as what constitutes a “superhuman” cause, whether there is a causal relationship between the Pandemic and the impossibility to perform, and similar questions regarding the Stay in Place Orders.

Practical Approaches

The coronavirus creates a truly novel set of circumstances that simply are unprecedented.  The courts will be tackling all of these issues likely for years. I strongly advise all parties who are evaluating a commercial lease or contract, to first try to take a practical, pragmatic approach to resolve the problem, and only if that approach fails should you consider litigation.  While the courts are available as a remedy once they re-open, because we are tackling such a unique set of circumstances and issues, in many cases it is unknown how the courts will decide these cases.  This uncertainty may make a pragmatic resolution in many instances more economically efficient, particularly during the periods where access to the courts is extremely limited.

In light of the Coronavirus Pandemic and its impacts on commerce in the Bay Area, I am placing emphasis of my practice on contractual issues arising from the affects of COVID-19 in the East Bay, California in Oakland, California, in Walnut Creek, California, and throughout the Bay Area. If you have questions, please feel free to contact me to discuss your case or to arrange for a consultation. I can be reached at (510) 465-0025 or (925) 708-3306.

SUBCONTRACTOR STOP NOTICE CLAIMS IN CALIFORNIA PUBLIC WORKS PROJECTS

Business Law, Real Estate Law

It happens all too often in public works projects. A subcontractor who has done a significant amount of work, is not getting paid. For a small to mid-size subcontractor, failure to pay or delays in getting paid can have a disastrous effect on the subcontractor’s business.

In this situation, in California, the subcontractor’s greatest ally and tool to get paid is the Stop Notice. The Stop Notice causes the public agency “owner” to withhold the amount set forth in the Stop Notice by the subcontractor. The greater this amount, the greater the impact it has on the prime contractor. Once done properly, the Stop Notice can be a very effective tool to resolve any payment dispute between the contractor and the subcontractor. Further, by withholding the funds the subcontractor claims is owed to them, it assures the subcontractor that if their claim is valid, that they will ultimately get paid regardless of whether or not the contractor has the ability to pay.

Because the Stop Notice is such an important tool for a subcontractor in a public works project, it is essential that the subcontractor follows the statutory rules to perfect their stop notice rights, such as properly serving a Preliminary Notice.

If the filing of a Stop Notice is ineffective in getting the subcontractor paid, then the subcontractor’s next step is to initiate a lawsuit to enforce the Stop Notice, and assert other remedies, such as asserting a claim against the payment bond. Once at this juncture in the process, it is very important that the subcontractor, if they have not done so already, retain a real estate attorney that is familiar with the stop notice procedures and related remedies.

I regularly represent clients in the East Bay, California in Oakland, California, in Walnut Creek, California, and throughout the Bay Area, in stop notice and related disputes. If you have questions, or need representation by a California real estate attorney involving a stop notice or public works contract dispute, please feel free to contact me to discuss your case or to arrange for a consultation. I can be reached at (510) 465-0025 or (925) 708-3306.

ENFORCEABILITY OF COVENANTS NOT TO COMPETE

Business Law

Covenants not to compete are agreements between two parties, where one party agrees not to engage in certain type of behavior that may compete with the other party. In California, the law strongly disfavors covenants not to compete. Unless one of the statutory exceptions to the rule prohibiting covenants not to compete applies, a covenant not to compete will be considered to be void by the Court and hence, completely disregarded.

One of the exceptions, where a covenant not to compete is permissible in California, is in the context of the sale of the goodwill of a business, so long as the covenant is limited to a similar business within a specific geographic area.

Because there is such a strong prohibition against covenants not to compete, any covenant not to compete needs to be carefully drafted to conform with the requirements of the applicable exception statute, and be specific enough so it is very, very clear as to what the parties are agreeing to.

Disputes regarding covenants not to compete come up all the time. They come up in the context of whether or not a covenant not to compete is permissible for the type of transaction that is involved; they come up as to whether or not the covenant not to compete is permissible in the manner that it is used; they come up as to what the scope of the covenant might be; and they come up as to whether or not a covenant has been breached.

Disputes relating to covenants not to compete can be rather significant, as the potential damages can be extremely severe if the covenant not to compete is enforceable and the complaining party can prove damages. Therefore, when evaluating whether or not a covenant not to compete is enforceable, and/or whether or not a covenant not to compete has been breached, it is important to consult with an experienced business/contract attorney.

I often represent clients in the East Bay, in Oakland, California, and in Walnut Creek, California, in business and contract disputes. If you have any questions, or need representation by a California business or contract attorney involving a dispute regarding sale agreements or covenants not to compete, please free to contact me to discuss your case or to arrange for a consultation. I can be reached at (510) 465-0025 or (925) 708-3306.

ENFORCING ORAL CONTRACTS IN CALIFORNIA

Business Law

While businesses and consumers do often enter contractual agreements by written contract, it is not uncommon to enter certain contracts using a verbal agreement or oral contract. This is particularly common between two parties that have done business together in the past, where mutual trust has developed. Unfortunately, disputes do arise. However, just because an agreement or contract is verbal and not in writing, does not mean that it is unenforceable. Having said that, enforcing oral agreements can at times be tricky.

For example, in California, the statute of limitations, the deadline by which a lawsuit would have to be filed in order to enforce an agreement, is shorter with oral agreements than with written contracts.

A common dispute that arises in an oral agreement is a dispute relating to what the parties agreed to (i.e., what are the terms of the agreement). In California, if there is a dispute relating to the terms of an oral contract, the court might look to the parties’ own conduct in performing the agreement prior to the dispute developing. Additionally, if the parties have done similar transactions in the past, the court may also look to the parties’ prior “course of dealings” to assist the court in interpreting what the parties agreed to when they entered the disputed oral agreement.

Oral agreements can be commonplace in business. There are a lot of differences between oral agreements and written contracts, and their enforcement, including the shorter statute of limitations. It is important that if a dispute arises relating to an oral agreement, that you act quickly to enforce the oral contract. If that is your situation, it is important that you promptly consult with a contract attorney to determine what steps you need to take to enforce the oral contract, and in the construction setting, there may be additional courses of actions available to you in enforcing the oral agreement, in addition to the filing of a lawsuit to enforce the agreement. Therefore, it is recommended that once a dispute arises, that you immediately consult with a capable contract attorney.

I regularly represent clients in the East Bay, in Oakland, California, and in Walnut Creek, California, in contract disputes. If you have questions, or need representation by a California business or contract attorney involving a dispute regarding an oral agreement or a written contract, please feel free to contact me to discuss your case or to arrange for a consultation. I can be reached at (510) 465-0025 or (925) 708-3306.

WHAT IS THE STATUTE OF FRAUDS AND ARE ORAL OR VERBAL AGREEMENTS ENFORCEABLE?

Business Law

So much of what we do in life and in business is done verbally. And it is not uncommon, and often typical, to enter a handshake deal, where you have agreed to enter agreements verbally or orally. This begs the question as to whether or not oral agreements are enforceable in California. The simple answer is yes. However, certain types of agreements need to be in writing to be enforceable.

In California, there is something referred to as the statute of frauds which says that certain types of agreements need to be in writing. One example of a type of agreement that is covered by the statute of frauds are agreements that require more than a year to be performed. However, even when the statute of frauds might apply to an agreement, requiring the agreement to be in writing, the statute of frauds has many exceptions. Therefore, even if an agreement is oral, and the statute of frauds would otherwise apply to that agreement requiring it to be in writing, an exception may apply, making it permissible that the contract is an oral contract.

It is always best to get a contract in writing. It eliminates the possibility that the other party to the agreement might deny the existence of the agreement, and it avoids disputes regarding what the terms of the agreement might be. If you must enter an agreement verbally, you should, at a minimum, confirm in writing the basic terms of the agreement. Often a simple email can overcome the limitations of the statute of frauds, and can avoid later disputes as to whether there was an agreement, or what the terms of the agreement might be.

I regularly represent clients in East Bay, California in contract disputes involving oral or verbal agreements, as well as disputes involving written agreements. If you have questions, or need representation by a California contract attorney involving a contract dispute or issue, please feel free to contact me to arrange for a consultation at (510) 465-0025.

As a Plaintiff to a Lawsuit, Can I Obtain a Lien Against the Defendant’s Property Before I Obtain a Judgment?

Business Law

In certain types of California lawsuits that involve commercial transactions, a plaintiff can apply to the Court and obtain a pre-judgement lien against the defendant’s property. A pre-judgment lien potentially locks up the defendant’s property until the case is over, which would preserve that property for enforcement of the plaintiff’s judgment in the lawsuit.

Obtaining a pre-judgement lien gives a plaintiff a couple of advantages. First, it greatly improves the likelihood that the plaintiff will collect on any judgment they obtain in the lawsuit. Second, it places a great deal of pressure on the defendant to agree to a settlement of the lawsuit on terms that are favorable to the plaintiff. Therefore, under the proper set of circumstances, obtaining a pre-judgement lien can be a very effective strategy for a plaintiff.

The application or request to the Court is referred to as an application for a pre-judgment right to attach order. There are quite a few technical requirements in successfully obtaining a pre-judgment right to attach order. The biggest obstacles require the plaintiff to establish that the claim is a “commercial” claim and that the plaintiff is likely to obtain a judgment against the defendant on that claim.

I have represented many East Bay California clients in applications for pre-judgment right to attach orders. If you have a claim that you want to determine whether or not you can obtain a pre-judgement lien upon, or a plaintiff has filed an application for a prejudgment lien against you, please feel free to contact me to arrange for a consultation at (510) 465-0025.