Are you are trying to get out of your lease or otherwise breach and terminate a contract due to the Coronavirus (COVID-19) pandemic without damaging your credit score? Fortunately, the Coronavirus pandemic has created a seemingly unforeseeable situation that may be deemed by courts to be a force majeure (sometimes called an act of God), a frustration of purpose, or to give rise to an impossibility or impracticability of performance, thereby allowing the lease or contract to be terminated.
If our force majeure letter requesting termination of contract due to the Coronavirus pandemic does not have the desired effect, the next step is a lawsuit seeking to cancel (terminate) the contract or lease at issue. Indeed, walking away from a contract creates the uncertainty of whether the other party to the contract, such as a landlord, may file a lawsuit, send you to collections, which may damage your credit rating. To avoid this risk, it is best to obtain a written agreement that the other party to the contract has released you in full from your obligations upon conditions deemed acceptable to them. However, if they will not do so, your next best option may be a lawsuit requesting that the court cancel the contract so that your actions are not considered a breach of contract.
It is always import to contact a lawyer to assist you before attempting to file a lawsuit, particularly where the attorney’s fee clause in the contract allows the other party to the contract to recover attorney’s fees if they prevail.
Plaintiff, [entity], alleges herein as follows:
- This is an action for termination of a commercial lease due to impracticability of performance, force majeure and frustration of purpose for a commercial warehouse located at [insert property address/APN]. The unforeseeable events transpiring from the Coronavirus pandemic have made performance impracticable for Plaintiff by means of inability to procure the goods it stores and distributes from the premises in addition to the lack of demand for those goods due to the Coronavirus pandemic and resulting governmentally-ordered shutdown of the vast majority of the economy, meaning performance would be at an extreme financial loss. Plaintiff began reaching out to the landlord-Defendant on [insert date] due to these issues, which were only exacerbated by Governor Newsom’s mandatory, statewide shelter-at-home order dated March 19, 2020. There is no foreseeable improvement for Plaintiff’s business such that termination of the lease, dissolution of its corporate existence, liquidation of its minimal assets with limited wholesale value and nominal, pro-rata payment to its numerous, unsecured creditors is the only viable option.
- The subject of this action is certain real property comprised of a commercial
warehouse within the [insert property address/APN] (the “Premises”).
- Plaintiff is a California [entity] (“Plaintiff” or “Plaintiff”) doing business within the State of California from the commercial space located at [insert property address/APN]. Plaintiff’s business consists of importation of goods for resale.
- Defendant [insert Defendant entity name] is a [insert entity type] (“Defendant”) doing business in the [insert county and state], and is presently the owner(s) of the commercial space located at [insert property address/APN].
- Plaintiff does not know the true names and capacities of the defendants sued as Does 1 through 10, inclusive, and therefore sues these defendants by such fictitious names. Plaintiff will amend its complaint to add the true names and capacities of these defendants when they are ascertained. Each of the fictitiously named Doe defendants is responsible for Plaintiff’s damages and/or the subject premises.
- This Court has jurisdiction over this matter for the reason that the amount in question exceeds the jurisdictional minimum of the Court, exclusive of costs and interest.
- Venue is proper in the [insert county and state] because the real property that is the subject of this action is located in [insert county]. Furthermore, the contract which was signed by the parties was to be performed within the [insert county and state].
- On or around [insert date lease was entered into], a lease agreement was made between Plaintiff and Defendant, a true and correct copy of which is attached as Exhibit 1 (the “Lease”), relating to the Premises. [If applicable, insert additional information about the Premises i.e. square feet, unique leasehold modifications etc.].
- The Lease provides [insert the term of the Lease and payment terms].
- [Insert relevant Lease section, paragraph etc.] Lease provides that the permitted uses of the Premises are [insert quoted section from Lease regarding permitted uses of the Premises].
- [Insert relevant Lease section, paragraph etc.] of the Lease provides that [insert quoted section from Lease regarding permitted uses of the Premises].
- [If applicable, insert relevant Lease sections that Defendant landlord may be in breach of]. A. In November 2019, the Novel Coronavirus (COVID-19) Begins to Infect a Portion of the Chinese Population, Ultimately Spreading Throughout the World
- On or around November 30, 2019, a novel coronavirus, hereafter referred to as the “Coronavirus” began to infect a portion of the Chinese population near and around the city of Wuhan, China. This virus was particularly devastating and, unlike the flu to which the Coronavirus has been frequently compared, it had a much higher mortality and transmission rate.
- The virus quickly began to spread outside the city of Wuhan to neighboring Chinese cities. In a matter of weeks, the virus had spread outside of mainland China and began to seriously impact other nations, including the United States, which as of the time of this complaint has the highest recorded number of cases and over 91,000 deaths, over a quarter of the world’s death total.
- The World Health Organization declared the Coronavirus a Global Pandemic in Mid-March of 2020. As a result, many nations enacted strict quarantines to curb the growth rate i.e. “flatten the curve”. As expected, the effect of these protective measures on businesses was immediate. Some businesses were labeled as essential and could continue operating while others were able to adapt to remote working, utilizing video-conferencing platforms such as Zoom, Google Hangouts, and various other forms of communication technology.
- However, the majority of businesses were not deemed essential and many employees did not have the luxury of working from home. Factory workers for example, were largely deemed non-essential and were required to remain at home, essentially eliminating factory production in certain areas of the world altogether for extended periods of time, severely effecting Plaintiff’s ability to acquire necessary goods.
- At present the Coronavirus is not globally contained and continues to grow, infecting more people at an exponential rate despite the global communities’ best efforts to contain its spread. B. The Coronavirus Has Effectively Shut Down Plaintiff’s Business
- Plaintiff’s business relies on imported goods stored on the Premises for distribution to its customers. In the weeks following the discovery of the Coronavirus, [specify how the Coronavirus pandemic and subsequent preventative measures impacted your business i.e. shutdown of factories, disruption of supply chain, etc.].
- [Insert specific facts regarding how acquiring substitute goods/identical goods from other sources has also been impacted by the worldwide spread of the Coronavirus pandemic]. C. The Effect of the Coronavirus Pandemic Has Frustrated the Commercial Purpose of the Lease and Made Performance Impracticable
- Further, the Coronavirus has frustrated the purpose of the Lease, which is limited under [insert quoted section from Lease regarding permitted uses of the Premises].
- “Frustration is a question of fact resolved in its favor by the trial court. The excuse of frustration, however, like that of impossibility, is a conclusion of law drawn by the court from the facts of a given case” Mitchell v. Ceazan Tires, Ltd. (1944) 25 Cal.2d 45, 48.
- Mitchell is cited by the Judicial Council of California Civil Jury Instructions for a breach of contract, providing that, “certain defenses are decided as questions of law, not as questions of fact. These defenses include frustration of purpose, impossibility, and impracticability.” CACI 300 (citing Mitchell, surpa; Autry v. Republic Productions, Inc. (1947) 30 Cal.2d 144, 157; Oosten v. Hay Haulers Dairy Employees and Helpers Union (1955) 45 Cal.2d 784, 788; and Glen Falls Indemnity Co. v. Perscallo (1950) 96 Cal.App.2d 799, 802).
- “Impracticability does not require literal impossibility but applies when performance would require excessive and unreasonable expense. Where performance remains possible, but the reason the parties entered the agreement has been frustrated by a supervening circumstance that was not anticipated, such that the value of performance by the party standing on the contract is substantially destroyed, the doctrine of commercial frustration applies to excuse performance.” Habitat Tr. for Wildlife, Inc. v. City of Rancho Cucamonga (2009) 175 Cal.App. 4th 1306, 1336.
- Courts have also held “performance may be so difficult and expensive that it is described as ‘impracticable,’ and enforcement may be denied on the ground of impossibility.” City of Vernon v. City of Los Angeles (1955) 45 Cal. 2d 710, 719; see Habitat, supra, 175 Cal.App. 4th 1306.
- When performance under a contract is only possible at excessive and unreasonable costs, Courts in have held that if “performance may be so difficult and expensive that it is described as ‘impracticable,’ and enforcement may be denied on the ground of impossibility.” City of Vernon v. City of Los Angeles (1955) 45 Cal. 2d 710, 719.
- The inability for Plaintiff to procure goods has made it a near impossibility for Plaintiff to perform its duties under the Lease.
- Accordingly, Plaintiff hereby alleges that it is, and has been for some time, practically unable to procure the goods required to operate its business. Further, Plaintiff alleges that the commercial purpose of the Lease has been frustrated by the Coronavirus Pandemic and subsequent governmental measures, resulting in Plaintiff inability to perform under the Lease. D. The Effect of the Coronavirus Pandemic Constitutes Supervening, Unforeseeable Event Under the Force Majeure Clause in the Lease, Thereby Entitling Plaintiff to Cancellation of the Lease
- Force majeure as an excuse for non-performance is set forth in California Civil Code § 1511(2), which expresses the legislature’s intent that several causes excuse performance as follows: “The want of performance of an obligation, or of an offer of performance, in whole or in part, or any delay therein, is excused by the following causes, to the extent to which they operate:… When it is prevented or delayed by an irresistible, superhuman cause,… unless the parties have expressly agreed to the contrary.”
- [Insert force majeure clause section in the Lease], in relevant part, that:
If either party hereto shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of strikes, lock-outs, labor troubles, inability to procure materials, failure of power, governmental moratorium … insurrection, war, terrorism, bioterrorism, fire, earthquake, inclement weather including rain, flood or other natural disaster or other reason of a like nature not the fault of the party delaying in performing work or doing acts required under the terms of this Lease… performance of such act shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such Force Majeure Delay. (hereinafter referred to as the “Force Majeure Clause”).
- Indeed: “‘Force majeure,’ . . . is not necessarily limited to the equivalent of an act of God. The test is whether under the particular circumstances there was such an insuperable interference occurring without the party’s intervention as could not have been prevented by the exercise of prudence, diligence and care.” Pacific Vegetable Oil Corporation v. C. S. T., Ltd. (1946) 29 Cal.2d 228; see e.g. Squillante v. California Lands (1935) 5 Cal. App. 2d 89 (grower of grapes held not liable on contract to deliver quality of specific variety of grapes due to extraordinary heat conditions affecting vineyards).
- The Coronavirus pandemic is a supervening unforeseeable event, akin to an act of god, or biological attack, which has delayed, hindered, and prevented performance under the Lease.
- Due to the Coronavirus pandemic, Plaintiff hereby alleges that it is, and has been for some time, practically unable to procure the goods required to operate its business.
- Plaintiff alleges that it has been materially delayed, hindered, and prevented from the economically feasible performance of its business because of the Coronavirus pandemic, which was not the fault of Plaintiff, and thereby Plaintiff alleges it should be released from the Lease Agreement due to the unforeseeable events which transpired because under the Force Majeure clause in the Lease.
FIRST CAUSE OF ACTION
(Cancellation of Contract (Lease) Due to Frustration of Purpose, Commercial Impracticability, and/or Force Majeure – Against All Defendants)
- Plaintiff repeats and realleges the allegations set forth above as though fully set forth herein.
- The global effects of the Coronavirus have made Plaintiff’s obligations under the contract impracticable, thereby entitling Plaintiff to suspend any and all performance under the contract.
- In case at hand, Plaintiff requires [insert specific facts that have prevented performance i.e. inability of suppliers to procure goods]. The production, shipment, and distribution of goods have all been materially affected by the Coronavirus, limiting not only the amount of goods but also the manner in which they can be procured. [Insert additional specific facts that have prevented performance i.e. inability of suppliers to procure goods]. By being unable to secure the goods, Plaintiff was materially harmed by the unforeseeable events of the Coronavirus, from which recovery will not be financially practical.
- The Coronavirus and subsequent global effects were an unforeseeable event in which was beyond the control of Plaintiff, and no amount of skill, good diligence or good faith could have prevented or even mitigated. Additionally, neither Plaintiff nor Defendant could have reasonably foreseen or anticipated at the time they signed the Lease that a global pandemic would effectively shut down the global production of goods for the foreseeable future. As a matter of law, the Coronavirus pandemic was a supervening circumstance which was not anticipated and made performance impracticable.
- Given the facts which have transpired since the origination of the Coronavirus, it is evident that Plaintiff performance under the Lease agreement have become legally and factually impracticable thereby frustrating the purpose of the Lease and, therefore, Plaintiff’s performance of making lease payments under the original Lease are excused.
- Even further, the Coronavirus pandemic constitutes a force majeure event entitling Plaintiff to termination of the Lease.
- Plaintiff requests a judgment cancelling the Lease effective [insert last date that Lease payments were made].
SECOND CAUSE OF ACTION
(Declaratory Relief re: Cancelation of Contract (Lease) Due to Frustration of Purpose, Commercial Impracticability, and/or Force Majeure – Against All Defendants)
- Plaintiff repeats and realleges the allegations set forth above as though fully set forth herein.
- Under Code of Civil Procedure 1060: “Any person interested under a written instrument . . . or under a contract, or who desires a declaration of his or her rights or duties with respect to another, or in respect to, in, over or upon property, . . . may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior court for a declaration of his or her rights and duties in the premises, including a determination of any question of construction or validity arising under the instrument or contract. He or she may ask for a declaration of rights or duties, either alone or with other relief; and the court may make a binding declaration of these rights or duties, whether or not further relief is or could be claimed at the time. The declaration may be either affirmative or negative in form and effect, and the declaration shall have the force of a final judgment. The declaration may be had before there has been any breach of the obligation in respect to which said declaration is sought.”
- In the above-captioned matter, an actual controversy has arisen and now exists between Plaintiff, on one hand, and Defendants, on the other hand, concerning their respective rights and duties with regard to whether further sums are owed under the Lease.
- Specifically, Plaintiff contends that no further sums are owed under the Lease due to the affirmative defenses to contract as a result of the Coronavirus pandemic.
- However, Defendants contend that Plaintiff continues to owe rent under the Lease despite the Coronavirus pandemic.
- A judicial declaration is necessary and appropriate at this time under the circumstances in order that Plaintiff may ascertain its rights and duties with relation to the Lease.
- Plaintiff request a judgment declaring that the Lease terminated effective [insert last date that Lease payments were made].
WHEREFORE, Plaintiff prays for judgment against all Defendants as follows:
- For termination of the Lease effective [insert last date that Lease payments were made];
- For a declaration that the Lease is terminated effective [insert last date that Lease payments were made];
- For costs of suit incurred herein;
- For such other and further relief that the court may deem just and proper.
Attorney for Plaintiff
Notice: Please contact an attorney to advise you of your rights upon an assessment of the facts in your case before using this letter. If you are trying to terminate a contract where the amount still owed is significant (e.g., more than $25,000), it is strongly advised that you contact a business attorney or bankruptcy lawyer to consider all of your options.