Are you trying to get out of your lease or otherwise breach and terminate a contract due to the Coronavirus (COVID-19) pandemic? Luckily, the Coronavirus pandemic has created a unique situation that is likely to be deemed by courts to be a force majeure (sometimes known as an act of God) that allows certain contracts to be terminated. Other theories of affirmative defenses to contract enforcement due to Coronavirus include frustration of purpose and impossibility of performance.
However, 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 or 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. Accordingly, the letter below has been drafted by Scott Talkov at Talkov Law Corp., a law firm assisting clients with expertise as a real estate attorney in Riverside. Scott was even interviewed by the Press-Enterprise because of his expertise in the area of UCR lease termination due to the Coronavirus pandemic.
A few helpful tips to terminating a contract are as follows:
- Offer the other party any funds they already have on hand, such as a rental deposit, to make the offer more attractive. Chances are, you’ll never get your deposit back anyways.
- If this is a lease, consider moving out first and providing the landlord with pictures of the premises in good condition, which will make the offer more attractive.
- Offer an immediate turnover of the keys and possession if your proposal is accepted.
- If there were issues with the other party’s performance of the contract (e.g., a leaky roof), it may be wise to remind them of these issues.
- An offer of some amount of money (e.g., one month’s rent) may increase the chances that your offer is accepted.
- Specify exactly how the Coronavirus (COVID-19) pandemic has interrupted you or your business.
- If the party writing this letter lacks assets, provide some evidence or arguments to that effect to show the other party that a lawsuit would be a waste of time and money.
[Sender’s Address, Phone Number and Email]
VIA EMAIL ONLY
Phone: [Recipient’s Phone]
Facsimile: [Recipient’s Fax Number]
[Recipient’s Email Address]
Re: [e.g., Issues With and Termination of Contract or Issues with Premises and Termination of Lease]
Property Address: [Property Address]
Tenant: [Tenant Name(s)]
Landlord: [Property Owner’s Name]
Dear [Mr/Ms.] [Property Manager/Property Owner/Other Party to Contract],
Unfortunately, I must inform you that [reference to yourself or your client seeking to terminate the contract, e.g., the tenant] [description of contract, e.g., in the above-referenced premises] is unable to pay [the rent or other contractual payment] going forward due to financial distress. Accordingly, this letter proposes a resolution to the potential dispute in this case that I suspect will be amenable to the [other party, e.g. landlord].
As has become all too common these days, the Coronavirus pandemic has created a force majeure defense to enforcement of the contract. Specifically, Civil Code § 1511(2) provides that the performance of an obligation is excused “when it is prevented or delayed by an irresistible, superhuman cause, or by the act of public enemies of this state or of the United States, unless the parties have expressly agreed to the contrary.” [In this case, there is no force majeure clause in the contract. Accordingly, the judicial decisions in California will control. Or, if there is a force majeure clause is the contract, quote the relevant portions of that clause that support your position that the clause applies to the Coronavirus pandemic.]
California liberally applies the force majeure defense, holding that “force majeure…is not necessarily limited to the equivalent of an act of God.” Pac. Vegetable Oil Corp. v. C.S.T., Ltd. (1946) 29 Cal.2d 238. The test for whether a force majeure or act of God situation is present is “whether…there was such an insuperable interference…as could not have been prevented by the exercise of due diligence.” Id.
Another California court specifically held that “force majeure is the equivalent of the common law contract defense of impossibility and/or frustration of purpose: performance of a contract is excused when an (1) unforeseeable event, (2) outside of the parties’ control, (3) renders performance impossible or impractical.” Citizens of Humanity, LLC v. Caitac Int’l, Inc. (Cal. Ct. App. Aug. 2, 2010) No. B215233, 2010 WL 3007771; see 20th Century Lites, Inc. v. Goodman (1944) 64 Cal.App.2d 938 (discharging a defendant’s obligations to pay a plaintiff for a three-year lease of neon light advertising of the defendant’s business after a government regulation was enacted prohibiting the lighting of such signs)
In this case, the Coronavirus pandemic was unforeseeable not only to [the party writing this letter, e.g. the tenant], but even to the United States government, as has been reflected by its response. Even the President’s trusted advisor, Dr. Fauci, estimating a death toll of a quarter-million Americans- even with the shutdown that has occurred. That shutdown has limited the need for the services provided by [the party writing this letter, e.g. the tenant]. Even further, this event was entirely outside of [the party writing this letter, e.g. the tenant’s] control, but, rather, has occurred due to the contagious nature of the virus and, at least arguable, the slow governmental response. What has occurred has rendered performance of the contract, by way of payment of the [the amount owed or rent and operation of the business], impossible or impracticable. The [party writing this letter, e.g. the tenant] was already running without sufficient profitability such that there is simply no purpose for the continued performance of the contract.
While the Coronavirus pandemic ultimately [caused this request for termination or brought the tenants to close their business], there were issues with the [the contract or condition of the property due to the landlord’s lack of maintenance] that predated the Coronavirus pandemic that created the conditions for [this need to terminate the contract or this financial failure]. Specifically, Section [specify section] of the [lease or contract] identifies the [e.g., “Lessor’s Obligations” as follows: “Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler system, Common Area fire alarm and/or smoke detection systems, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2”].
Contrary to those obligations, [specify the other party’s breaches, e.g., the roof has had repeated and ongoing leaks]. This is shown in the attached [e.g., pictures of the roof, the walls, and the floors attached as Exhibit 1]. These show [e.g., water damage on the roof, water seeping down the brick walls, and water on the floor]. These issues caused repeated damage to [e.g., the business, the tenants’ personal effects, while diminishing the tenant’s reputation as a reputable business].
However, I would like to see this matter end in a manner that is favorable to the [specify the other party to the contract, e.g., landlord] by bringing a peaceable end to the relationship. Accordingly, [specify something that the party writing this letter has done to assist the other party, e.g., the tenant has cleaned and remove all personal effects from the premises. This is shown in the pictures attached as Exhibit 2.] [If this is a lease, add: I am also in possession of the keys to be turned over to you if an agreement can be reached.]
Accordingly, [specify the offer to be made for a termination of the contract, e.g. the tenant hereby offers the keys to the premises along with the landlord’s retention of the security deposit in exchange for mutual waiver of all rights between the landlord and tenant].
Before making this offer, I reviewed all assets that I could locate. I concluded that [the party writing this letter, e.g. the tenant] has no [specify assets that the party writing this letter does not have, e.g. real property or other assets]. If you’re aware of any assets [the party requesting termination] can offer, please let me know. Otherwise, chasing [the party writing this letter] for a few thousand dollars where numerous affirmative defenses appear to be viable would be a waste of everyone’s time and money.
I hope to hear from your office on these issues by [specify a date about one week away]. I can be reached at [add your phone number] and at [your email address]. [If there is something to be done if the offer is accepted, specify that it will be done promptly, e.g. I can overnight the keys as soon as you confirm your agreement as set forth herein].
Very truly yours,
/s/ [Sender’s Signature]
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.