Do Tenants still owe rent when their businesses are shut down?

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David Winker, Esq. is a business attorney in Miami.

The necessity to shut down huge swaths of our economy in an effort to flatten the curve of the Covid-19 pandemic has caused hardships throughout our community, but perhaps no one has borne the brunt more than small business.

This burden is especially hard on commercial tenants that have been forced to close their doors by and the State of Emergency declared by both the Governor of Florida and Miami-Dade County Mayor Carlos Gimenez.

These financial and operational issues have made it impossible for many tenants to continue to pay the current rental payment as it comes due this month.

How will Tenants and Landlords handle this situation?

Some Landlords will take a hard line, arguing that the risk falls on the Tenant and that Tenants needs to fund operations through the assistance programs offered by the Small Business Administration, including the $10,000 Emergency Grant available to almost all businesses.

It is important to note that while Governor DeSantis’ recent Eviction and Foreclosure Moratorium prohibits the filing of both residential and commercial foreclosures, only residential evictions are prohibited and it likely we will see many commercial evictions moving forward.

Many other Landlords will be willing to work with Tenants, given the cost of eviction and the time required to find a new client, particularly during this pandemic crisis.

Tenants are not without recourse, and many are bringing forth arguments that the pandemic crisis, and the declarations of state of emergencies in response, has frustrated the very purpose that caused them to enter into the lease.

Frustration of Purpose

Frustration of purpose is a defense available to release a party from a contract when an event substantially frustrates a party’s principal purpose, and the non-occurrence of the event was a basic assumption of the contract, and the occurrence of the event in question is not the fault of the party asserting the defense.

In plain language, the frustration of purpose defense excuses performance by a party where the value of performance regarding the subject of an agreement has been frustrated or destroyed.

A tenant using this argument would argue that the COVID-19 pandemic and the business restrictions put in place in response to the pandemic represent completely unforeseeable events that have significantly altered the circumstances and the purpose of the Lease Agreement such that performance by the Tenant would no longer fulfill any aspect of its original purpose when entering the lease agreement.

An example of frustration of purpose would be a tenant operating a massage parlor that can no longer operate under the emergency orders.  A restaurant does not fit as neatly into this category, however, as the emergency order still allows food take-away and delivery.

Impossibility of Performance

Performance of the Lease Agreement obligations- specifically those related to rent payment- may have also become impractical or impossible for Tenants.  Similar to the frustration of purpose defense, the defense of impossibility and impracticability may excuse non-performance by a party within a contract when an unexpected intervening event occurred.

Impossibility is not only strict impossibility, but impracticability because of extreme and unreasonable difficulty, expense, injury or loss involved.  Florida Courts have stated that, under the doctrine of impossibility of performance or frustration of purpose, a party is discharged from performing a contractual obligation which is rendered to be impossible to perform, and the party neither assumed the risk of impossibility nor could have acted to prevent the event rendering the performance. See Hopfenspirger v. West, 949 So. 2d 1050, 1053-54 (Fla. 5th DCA 2006).

Supervening governmental action and regulations are among several types of business risks which implicate the impossibility defense under Florida law.

Depending on the specific terms in their lease agreements, many Tenants may attempt to argue that the pandemic and the emergency orders issued in response thereto have frustrated the very reason they entered into their leases and their performance, including payment, is impossible, because they are prohibited from carrying on their business.

Many tenants are approaching Landlords using this argument, not to request termination of their leases, but as part of an effort to be released from responsibility for rental payments during the time they are prohibited from operating their businesses, but in exchange agreeing to continue paying for utilities, taxes and insurance during closure.

This too shall pass

Business and uncertainty do not mix well, but both Tenants and Landlords need to remember that this pandemic will pass at some point and things will get back to normal, be it 30, 60 or 90 days.

So it behooves tenants and landlords to take the long view, avail themselves of the assistance programs offered by the Small Business Administration, and negotiate a solution that allows the parties to meet each other half-way and ensure that everyone is ready to get the economy fired back up as soon as possible.

David Winker, Esq. is a real estate attorney in Miami.


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6 COMMENTS

  1. The purported SBA loans for small businesses is terribly flawed. It will loan money to continue business expenses and a payroll. If a business is closed and no revenue coming in are they supposed to pay staff to stay home ?The businesses that have been named as essential and can remain open are doing what they can to serve the public, for many it’s a bonanza as shoppers are clearing off shelves in fear of stores closing such as grocery stores If a tenant can’t pay rent the owner of the property will also suffer financial loss. same situation with rental apartments, it’s been suggested that all rents be forgiven until this crisis is over. what about the owner of the property and his/her reliance on that income, don’t hey matter? Many apt’t rentals in Miami include utilities. Should a landlord pay out of pocket to maintain a tenant because they are out of work ? The people in our gov’t don’t think about all the issues and just go and write these terrible programs to make it appear that this administration cares.

  2. This is not frustration of purpose. The tenant still has exclusive possession and control of the leased premises. THAT IS THE EXPRESS PURPOSE OF A LEASE. IF An unforeseen event that renders the tenant unable to perform(pay rent)is a defense., then how do you rate
    Loss of a job due to a fire or even company downsizing?
    2nd.A DEFENSE OBVIATES THE NEED TO PERFORM. Here the rent is still due and owing.

  3. I question why a business doesn’t maintain a 6 month expense reserve . I do in my business and personal expenses. But hey, that’s just me.

  4. I invested all i had to purchase my house wich is rented out. I talked to my tenant who is working and is healthy. They have not paid their rent due to the headlines stating no evictions.
    I understand the crisis and the scare of stocking up food. But is it fair that i pay their water bill along with property tax that is due.
    It seems that most renters when given a hand will take a foot. I was going to let my tenant only pay half to cover water bill and property expenses during this pandemic. But after being ghosted with no communication and them not returning text or messages. I feel like my hands are tied and their is no recourse. I am willing to help in these times but feel burdened and abandoned by the lawmakers and reports.

  5. I invested all i had to purchase my house wich is rented out. I talked to my tenant who is working and is healthy. They have not paid their rent due to the headlines stating no evictions.
    I understand the crisis and the scare of stocking up food. But is it fair that i pay their water bill along with property tax that is due.
    It seems that most renters when given a hand will take a foot. I was going to let my tenant only pay half to cover water bill and property expenses during this pandemic. But after being ghosted with no communication and them not returning text or messages. I feel like my hands are tied and their is no recourse. I am willing to help in these times but feel burdened and abandoned by the lawmakers and reports. Signed i have bills to.

  6. I own a condo in Miami Beach in a luxury building and have rented it out. With mortgage, condo fees, special assessment, property taxes, home owner’s insurance and other misc repair expenses, I am already running a $1500 a month negative cash flow due to low rents in Miami Beach.Am I supposed to forgive rent on top of that? That is quite unreasonable and unfair. I can tell no landlord in Miami Beach is making any money from renting their condo even if the condo is all paid up

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