The Potential for Community Associations to Exercise “Emergency Powers” as a Result of COVID-19

The Potential for Community Associations to Exercise “Emergency Powers” as a Result of COVID-19

Florida Statute Sections 718.1265 and 720.316 provide condominium associations and homeowners’ associations, respectively, the right to exercise certain emergency powers “in response to damage caused by an event for which a state of emergency is declared pursuant to s. 252.36 in …

the locale in which the condominium is located [for a condominium association]”.

the area encompassed by the association [for a homeowner’s association]”.

The range of emergency powers includes, but is not limited to:

  1. The right to conduct board or membership meetings by means other than in person gatherings;
  2. The right to determine that portions of the association’s property would be unavailable for entry or occupancy;
  3. The right to levy special assessments without a vote of the owners; and
  4. The right to borrow money and pledge association’s assets as collateral.

Clearly, these emergency powers would apply in the event of physical damage to association properties caused by an event that results in a state of emergency being declared within the State of Florida.  However, could these emergency powers be used when the “damage” to the association may be economic in nature (such as the loss of expected assessment revenue) or in the form of possible future personal injury or death to others (caused by the permitted use of the association’s property by infected individuals) and when the damage is caused by the consequences of a pandemic, such as COVID-19?

On March 27, 2020, the Florida Department of Business and Professional Regulation issued its emergency order 2020-04.  That order recognized that there were certain emergency powers that were available to associations, enumerated in both the condominium statute (in Section 718.1265) and the HOA statute (in Section 720.316), that could be used as a result of COVID-19.  Those powers expressly recognized by emergency order 2020-04 included the right to conduct board or membership meetings by means other than in person gatherings and the right to determine that portions of the association’s property would be unavailable for entry or occupancy.  However, the powers expressly recognized by emergency order 2020-04 did not include the right to levy special assessments without a vote of the owners or the right to borrow money and pledge association’s assets as collateral.

On May 20, 2020, the DBPR issued a new order, emergency order 2020-06.  The new order terminates most of the provisions in the original order, effective June 1, 2020.

The fact that the DBPR has issued this new order does not mean that the emergency powers of associations that were referenced in the earlier order cannot be used.  However, it means that, in the event a purported emergency power is used by an association which is subsequently challenged by an owner in the community, a court would need to decide whether that emergency power could be used.  The DBPR is no longer providing associations with a possible “safe harbor” to use in arguing that an association’s emergency powers can be used.

It should also be noted that the impact of the original DBPR emergency order, and the impact of the subsequent DBPR emergency order that terminates the original order, is subject to debate.  Many attorneys have questioned whether the DBPR had the requisite constitutional authority to issue a pronouncement that the needed  “emergency” that was required to trigger these “emergency powers” was in existence.  For those attorneys holding such a belief, the issuance of the original order was viewed as an ineffective act, as only the Florida legislature could have modified the provisions of these statutes to clarify whether the “emergency powers” could be triggered by a pandemic, and only a Florida court could have made a binding interpretation of whether the existing provisions of these statutes would allow for an association’s use of these “emergency powers” in the event of a pandemic.  These attorneys also believe neither of these DBPR emergency orders would have impacted the issue of whether community associations could utilize “emergency powers” due to the pandemic.

Any community association seeking to invoke emergency powers should seek assistance of its counsel before doing so.

For the latest news on COVID-19’s effects on community associations, contact our association law team for more information.

Update to CARES Act – SBA Issues New Guidance on PPP Loan Forgiveness

Update to CARES Act – SBA Issues New Guidance on PPP Loan Forgiveness

On May 15, 2020, the U.S. Small Business Administration (“SBA”) released its long-awaited guidance on the forgiveness of Paycheck Protection Program (“PPP”) Loans, in the form of the Paycheck Protection Program Loan Forgiveness Application (the “Application”). The Application contains four components – 1) the PPP Loan Forgiveness Calculation Form, 2) the PPP Schedule A, 3) the PPP Schedule A Worksheet, and 4) the PPP Borrower Demographic Information Form. In order to qualify for forgiveness, a Borrower must provide its Lender with a complete PPP Loan Forgiveness Calculation Form and the PPP Schedule A. The PPP Schedule A Worksheet, on which the Borrower must identify each employee employed during the covered period and allocate payroll costs incurred by each such employee (amongst other things), must be completed and maintained within the Borrower’s records for six years after forgiveness, but is not required to be submitted to the Lender at the time of application for forgiveness. The PPP Borrower Demographic Information Form is completely optional. Accompanying the Application are a set of very detailed instructions which highlight several new developments in the manner in which the forgiveness program will be interpreted and administered. The following are a few of those developments:

  1. Expansion of “Covered Period” –The CARES Act provides that forgiveness will apply to certain costs incurred and payments made (more on this later) during the “Covered Period”, which is defined as the 8-week period beginning on the date of the origination of the PPP Loan (i.e. the date the loan is disbursed to Borrower). The Application clarifies that Borrowers now have the option of designating an “Alternative Payroll Covered Period,” which will begin on the first day of the Borrower’s first pay period following the date of disbursement. This Alternative Payroll Covered Period may be used instead of the “Covered Period” for calculations related to payroll costs and forgiveness reductions, but not for the calculations related to non-payroll costs eligible for forgiveness, such as interest on mortgage debt, rent, and utilities.
  2. Loans greater than $2 million, affiliates included – The Application contains a check-box which must be checked off by Borrowers who, together with their affiliates, have received PPP loans in excess of $2 million. The FAQ for Lenders and Borrowers (the “FAQ”) published and periodically updated by the SBA, in questions 39 and 46, had already made clear that such Borrowers would be subject to a review of their loan file by the SBA and Department of Treasury, so it should be no mystery why this check-box is included in the Application. However, the significance of this inclusion is that Borrowers must now actively confirm whether their loan amount combined with their affiliate’s loan amount(s) exceeds the $2 million threshold in order to provide the accurate information on the Application. This will require such Borrowers to interpret the affiliation rules contained in the regulations concerning the Small Business Act and the prior regulations released regarding the CARES Act in order to accurately check the box.
  3. Payroll Costs incurred but not paid may be forgiven– According to the instructions for the PPP Loan Forgiveness Calculation Form, payroll costs fall within the Covered Period or Alternative Covered Period, and are therefore eligible for forgiveness, when they are either 1) paid, meaning a paycheck has been distributed or an ACH credit transaction has been originated, or 2) not paid, but incurred during the last pay period of the Covered Period or Alternative Payroll Covered Period, as applicable, and paid on or before the next regular payroll date. This clarifies the meaning of the phrase “costs incurred and payments made during the covered period,” as used in the CARES Act with respect to payroll costs eligible for forgiveness.
  4. Payroll costs forgiveness capped at $15,385.00 per employee – the CARES Act has always specified that “payroll costs” do not include “the compensation of an employee in excess of an annual salary of $100,000.00, as prorated for the covered period.” Now, that exclusion has been condensed to a specific number – $15,385.00. In the PPP Schedule A Worksheet, Borrowers must not allocate more than this amount to any single employee.
  5. FTE calculation revealed – Under the CARES Act, a Borrower’s forgiveness amount will be reduced by a factor based on a reduction in the average “full-time equivalent employees” (“FTE”) during the covered period. After much speculation as to whether FTE’s would be calculated in accordance with I.R.S. standards or otherwise, the Application has revealed two ways in which FTE’s may be calculated for purposes of determining the reduction factor – 1) for each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth, capped at 1.0 or 2) employees who work 40 hours or more per week are assigned 1.0 FTE, and all other employees are assigned a .50 FTE (the “simplified” method).  Under the first method, for example, if an employee Is paid an average of 35 hours per week, he or she will count as .9 FTE (.875 rounded to the nearest tenth).
  6. New exceptions to reductions in forgiveness – Now, the reductions in the forgiveness amount due to reduction in FTE will not apply 1) for any positions for which the Borrower made a good-faith, written offer to rehire an employee during the Covered Period or Alternative Covered Period which the employee rejects, and 2) for any employees who were fired for cause, voluntarily resigned, or voluntarily requested and received a reduction of their hours, during the Covered Period or Alternative Covered Period. The exception will not apply to either if these categories if a new employee is hired to replace the one lost. One thing to note is that these exceptions are limited to events occurring in the 8-week Covered Period or Alternative Covered Period. This may be significant since some of these events may have occurred outside the 8-week period but may nonetheless factor into the reduction calculation. For example, if any employees voluntarily resigned after February 15, 2020 (the date which a Borrowers FTE numbers during the Covered Period or Alternative Covered Period are compared against) but before the Covered Period or Alternative Covered Period begins, then they will presumably factor into the reduction in FTE’s per the calculation in the Act, even though they were not terminated by the Borrower.

Here is a link to the Application, in its entirety – https://www.sba.gov/sites/default/files/2020-05/3245-0407%20SBA%20Form%203508%20PPP%20Forgiveness%20Application.pdf

For the latest updates on PPP Loan Forgiveness Guidance, contact our corporate law or banking and finance teams for more information. To see other legal updates that are occurring from COVID-19, visit our resources page HERE.

Update Regarding CARES Act PPP Loan Program – Safe Harbor for Loans under $2 Million

Update Regarding CARES Act PPP Loan Program – Safe Harbor for Loans under $2 Million

On May 13, 2020 the U.S. Small Business Administration (“SBA”) published new guidance clarifying prior guidance which had left many loan recipients confused and fearful of potential penalties associated with their PPP loans. To recap, over the last few weeks there has been much news and discussion debating whether companies who have received PPP Loans were actually eligible at the time they applied for the loan, and whether they should return the money. This came on the heels of the SBA’s publication of Question 31 on its Payment Protection Program Frequently Asked Questions document (the “FAQ”) on April 23, 2020, which states that recipients should have considered their economic need for the loan, including their current business activity and adequate sources of liquidity, at the time they applied for the loan. FAQ 31 goes on to permit recipients to pay back their PPP loans without any penalty for making bad-faith certifications on their application, before May 7th (a deadline that was subsequently extended to May 14th). Ultimately, FAQ 31, as well as the subsequent interim final rules issued by the SBA, simply added to the confusion surrounding the PPP Loan program, and led many borrowers to pay back their PPP loan out of concern that they might be investigated by the SBA for inadvertently making bad-faith certifications on their loan application.

The newly published Question 46 of the FAQ clarifies that any Borrowers of PPP loans under $2 million will be subject to a “safe harbor,” meaning that they are automatically deemed to have made the certifications regarding their need for the PPP loan in good faith, and will not be subject to investigation or penalty. This guidance provides relief to the vast majority of Borrowers, as only a relatively small number of Borrowers have received loans in excess of $2 million, per the SBA’s published data. For those Borrowers who did receive loans in amounts greater than $2 million, Question 47 of the FAQ extends the deadline to pay back the PPP loan through May 18, 2020, so they have a few more days to consider whether they should pay back their PPP loan. In doing so, the following are a few factors these Borrowers should consider:

1) any sources of liquidity, including lines of credit of cash reserves, that the Borrower and/or its affiliates may have had access to at the time they applied for the PPP Loan,
2) whether tapping into those other sources of liquidity to cover the business’s payroll costs, rather than taking the loan, would have been significantly detrimental to the business;
3) whether those sources of liquidity are needed to cover expenses other than payroll costs or cannot be used for payroll costs for other reasons;
4) how the economic uncertainties made applying for the PPP loan a necessary action to secure the survival of your business; and
5) how the pandemic and the government mandated shut down orders have actually affected the underlying stability of your business.

Borrowers should document these details, as well as any other reasons they believe the PPP Loan was necessary to support its ongoing operations, in a brief memorandum in preparation for a review by the SBA and Department of Treasury, who have pledged to review every loan in excess of $2 million following the Borrower’s request for forgiveness. This review will likely look at the Borrower’s initial need for the loan, as well as the Borrower’s use of the loan proceeds, to ensure compliance with the terms of the CARES Act and the subsequent released guidance and regulations. In fact, it may be prudent for Borrowers with loans under $2 million to prepare a brief memorandum for their records, in case their lender asks them to reconfirm their certification that the current economic uncertainty made the loan request necessary to support the ongoing operations of their business.

FAQ 46 also states that if the SBA and Department of Treasury determine that a Borrower did not make the certifications regarding their need for the PPP Loan in good faith, and did not return the funds in a timely manner, it will “seek repayment of the outstanding PPP loan balance” and will deem the Borrower ineligible for forgiveness, but will not pursue any other penalties in connection with the bad-faith certification as long as the Borrower pays back the PPP Loan. Ultimately, Borrowers of PPP Loans in excess of $2 million can still have a legitimate basis for their application, but will need to make sure they are prepared to defend that basis when the SBA and Department of Treasury review their loan.

The periodically updated FAQ can be found on the SBA website at https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

Were Association Lien Foreclosures Intended to be Covered by Florida’s Moratorium on Mortgage Foreclosures?

Were Association Lien Foreclosures Intended to be Covered by Florida’s Moratorium on Mortgage Foreclosures?

On April 2, 2020, Florida Governor Ron DeSantis, in response to the COVID-19 pandemic, issued Executive Order 20-94, entitled “Mortgage Foreclosure and Eviction Relief” (“EO 20-94”).  EO 20-94 provided for a statewide moratorium on mortgage foreclosure causes of action as well as a statewide moratorium against residential evictions based upon the non-payment of rent (While there was no express limitation of that moratorium to residential mortgage foreclosure causes of action, it appears, from the language of that order, that it was only intended to apply to residential mortgage foreclosure actions).

EO 20-94 is currently set to elapse on May 17, 2020.  However, it appears likely that the provisions of EO 20-94 will be extended beyond that current deadline through the issuance of a subsequent executive order.

One of the many questions begged by the issuance of EO 20-94 was this one: “Were homeowner’s association and condominium association lien foreclosure actions intended to be covered under the moratorium on mortgage foreclosures established by EO 20-94?”

“While there is no reference, in EO 20-94, to homeowner’s association liens or condominium association liens, the uncertainty as to whether the association lien foreclosure actions were intended to be covered by EO 20-94 stems from the interdependency, between the association lien foreclosure actions and mortgage foreclosure actions, established by the Florida Statutes.  Section 718.116(6)(a), Florida Statutes and Section 720.3085(5), Florida Statutes, both provide:   “The association may bring an action in its name to foreclose a lien for unpaid assessments secured by a lien in the same manner that a mortgage of real property is foreclosed and may also bring an action to recover a money judgment for the unpaid assessments without waiving any claim of lien.”       

Thus, if an association lien foreclosure action is to proceed in “the same manner in which a mortgage of real property is foreclosed”, and a mortgage on real property cannot currently be foreclosed due to EO 20-94, it would then seem to follow that association lien foreclosure actions must be subject to the same statewide moratorium that currently prevents mortgages on real property from being foreclosed.

This result may not have been intended by Governor DeSantis.  That appears to be demonstrated by the fact that EO 20-94 did not expressly restrict all foreclosure actions on real property.  Instead, only mortgage foreclosure actions were restricted. That conclusion also appears to be bolstered by the following language found in Section 3 of the order:  “Nothing in this Executive Order shall be construed as relieving an individual from their obligation to make mortgage payments or rent payments.”  If EO 20-94 were intended to also apply to association lien foreclosure actions, it would have been likely that Section 3 would have been rewritten to have read: “Nothing in this Executive Order shall be construed as relieving an individual from their obligation to make mortgage payments, homeowner’s association or condominium association payments, or rent payments.”     

However, a reading of EO 20-94 as restricting all foreclosure actions on real property, or at least on residential real property, appears to be supported by the apparent underlying goal of that order — preventing Florida residents from being forced out of their residences, during the pandemic, due to a failure to pay obligations associated with the occupancy of those residences, for those obligations (such as a mortgage obligation or a rent obligation) that afford a creditor the right to compel the resident to vacate the residence (through the completion of a foreclosure sale by the mortgage holder or the completion of an eviction action by the landlord).  Since a homeowner’s association and a condominium association are both in the class of creditors that also have the right to compel the resident to vacate the residence (through the completion of a foreclosure sale), perhaps Governor DeSantis did intend for EO 20-94 to also apply to a homeowner’s association and a condominium association.

Regardless of Governor DeSantis’ original intentions at the time of the issuance of EO 20-94, this reader hopes that, in the event the restrictions imposed by EO 20-94 are extended beyond the current deadline through the issuance of a subsequent executive order, the subsequent order will provide clarity as to this issue.  In addition, perhaps the extended order, assuming one is issued, will provide an exception for vacant properties as there would appear to be no reason to prevent foreclosures on properties that are currently vacant.

For the latest news on COVID-19’s effects on community associations, contact our association law team for more information.

June 4, 2020 Update:
Executive Order 20-121 (“EO 121”) was issued on May 14, 2020 by Governor DeSantis.  It extended EO 20-94 through the end of the day on June 1, 2020.  Unfortunately, EO 20-121 did not clarify whether EO 20-94 was intended to also cover homeowner’s association and condominium association lien foreclosure actions.  It also did not provide an exception for vacant properties.  Instead, EO 20-121 merely read: “I hereby extend Executive Order 20-94 until 12:01 a.m. on June 2, 2020.”   

Executive Order 20-137 (“EO 137”) was issued on June 1, 2020 by Governor DeSantis.  It extended EO 20-94 through the end of the day on June 30, 2020.  Unfortunately, EO 20-137 did not clarify whether EO 20-94 was intended to also cover homeowner’s association and condominium association lien foreclosure actions.  It also did not provide an exception for vacant properties.  Instead, EO 20-137 merely read: “I hereby extend Executive Order 20-94 until 12:01 a.m. on July 1, 2020.” 

Implementing the Families First Coronavirus Response Act (“FFCRA”): Department of Labor Provides Updated Guidance—Part II

Implementing the Families First Coronavirus Response Act (“FFCRA”): Department of Labor Provides Updated Guidance—Part II

Since the FFCRA’s enactment on March 18, 2020, the Department of Labor (“DOL”) has made good on its promise to release guidance on the implementation the new Emergency Family and Medical Leave Expansion Act (“E-FMLA”) and The Emergency Paid Sick Leave Act (“E-PSLA”) on a “rolling” basis.

The DOL has continually released guidance in the form of its Frequently Asked Questions (FAQs) webpage, with the most recent most recent version found here, as well as facts sheets and a new required workplace poster. More substantially, the DOL published its Temporary Regulations under the FFCRA in the Federal Register on April 6, 2020.

This update provides highlights and clarifications on issues employers should know moving forward.

 

The DOL Lifted its Stay on Enforcement – The FFCRA’s paid leave provisions became effective April 1, 2020. However, the DOL had a limited stay of enforcement until April 17, 2020. The DOL is now enforcing the FFCRA. So, employers need to immediately ensure they have FFCRA policies in place and are operating in compliance with the FFCRA’s provisions. Remember, the DOL will retroactively enforce violations back to the effective date of April 1, 2020, if employers have not since remedied the violations.

Small Business Exemption—the DOL has provided further information regarding the small business exemption to the FFCRA leave provisions. An employer (including a religious or nonprofit organization), with fewer than 50 employees is exempt from providing: (a) paid sick leave due to school or place of care closures or child care provider unavailability for COVID-19 related reasons and (b) expanded family and medical leave due to school or place of care closures or child care provider unavailability for COVID-19 related reasons, when doing so would jeopardize the viability of the small business as a going concern.

A small business may claim this exemption if an authorized officer of the business has determined that:

  1. The provision of paid sick leave or expanded family and medical leave would result in the small business’s expenses and financial obligations exceeding available business revenues and cause the small business to cease operating at minimal capacity;
  2. The absence of the employee or employees requesting paid sick leave or expanded family and medical leave would entail substantial risk to the financial health or operation capabilities of the small business because their specialized skills, knowledge of the business, or responsibilities; or
  3. There are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee or employees requesting paid sick leave or expanded family and medical leave, and these labor or services are needed for the small business to operate at a minimal capacity.

Based on the DOL’s explanation of the small business exemption, it appears an employer could grant leave to some employees but deny leave to others depending on the financial impact. Further, the DOL requires that the small businesses claiming this exemption must document the determination that it is exempt. However, there is no requirement that the employer must send this documentation to the DOL. No specified form of documentation is explained or required, just as long as the documentation establishes one of the three requisite bases for exemption listed above.

“Substantially Similar Condition”—Of the six qualifying reasons for an employee to be eligible for E-PSLA benefits, the sixth defined reason is: “The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of Treasury and the Secretary of Labor.”

However, the U.S. Department of Health and Human Services (“HHS”) has not yet identified any “substantially similar condition” that would allow an employee to take paid sick leave. This appears to be a catchall provision that provides flexibility for defining additional reasons for leave in the future. Nonetheless, the DOL states it will issue guidance explaining when an employee may take paid sick leave because of a “substantially similar condition.”

Quarantine and Isolation Clarified—For the purposes of the FFCRA, a Federal, State, or local quarantine or isolation order includes quarantine or isolation orders, as well as shelter-in-place or stay-at-home orders, issued by any Federal, State, or local government authority that causes an employee to be unable to work (or telework). However, for such an order to qualify the employee for leave, being subject to the order must be the reason the employee is unable to perform work (or telework) that the employer has available for the employee. As result, an employee cannot take paid leave under the E-PSLA due to a quarantine or isolation order if the employer does not have work for the employee to perform due to the order or for other reasons.

Concurrent Usage of FFCRA Leave and Existing Employer Leave Policies—The DOL clarified that paid sick leave under the E-PSLA is in addition to any form of paid or unpaid leave already provided by an employer’s existing leave policy. An employer may not require the employer’s provided paid leave to cover the same hours as paid sick leave under the E-PSLA.

However, an employer may require that any paid leave available to an employee under the employer’s existing policies run concurrently with the paid leave under the E-FMLA to allow an employee to care his or her child because their school or place of care closed due to a COVID-19 related reason. In this situation, the employer must pay the employee’s full pay during the leave until the employee exhausts his or her available paid leave under the employer’s policy.

Additionally, upon agreement between the employer and employee, and subject to federal or state law, paid leave provided by an employer may be used to supplement the two-thirds pay the employee may receive under the E-FMLA so that the employee may receive the full amount of the employee’s normal compensation.

Lastly, an employee may choose—but an employer cannot require the employee—to take paid sick leave under the E-PSLA or paid leave under the employer’s existing leave policy for the first two weeks of unpaid E-FMLA leave, but not both.

12-Workweek Standard applies for FMLA and E-FMLA—An eligible employee is entitled to paid sick leave under the E-PSLA regardless of the amount of leave taken by the employee under the FMLA. However, if the employer was covered by FMLA prior to April 1, 2020, the employee’s eligibility for E-FMLA is contingent upon the employees’ FMLA leave usage during the employer’s designated 12-month period. An employee may take a total of 12 workweeks for both FMLA and E-FMLA during a 12-month period. If an employee has taken some—but not all—of their 12 workweeks under FMLA during the 12-month period, then the remaining leave available can be used pursuant to E-FMLA leave.

For example, if an employee took two weeks of FMLA leave in January 2020 to recover from surgery, the employee would have 10 weeks of FMLA leave remaining. Because E-FMLA is just an expanded type of FMLA, the employee would only be entitled to take 10 weeks of E-FMLA if they are eligible. If the employer has only become covered by FMLA on or after April 1, 2020, this analysis does not apply.

Conditions for Intermittent Leave—The DOL has clarified that although intermittent leave is not specifically permitted under the FFCRA, employers may allow it by policy. But conditions apply.

Unless the employee is teleworking, once the employee begins taking paid leave under the E-PSLA, the employee must continue to take paid sick leave each day until (1) the full amount of paid sick leave provided by the E-PSLA is used or (2) the employee no longer has a qualifying reason for taking paid sick leave. This is because an employee who qualifies for E-PSLA is a vector for coronavirus and the goal of E-PSLA is to prevent the spread of the virus.

However, if the employee and employer agree, a teleworking employee can receive paid sick leave under the E-PSLA or E-FMLA intermittently. Intermittent leave can be taken in any increment provided the employer and employee can agree. For instance, an employee could work from 8:00 AM to 12:00 PM, take leave from 12:00 PM to 2:00 PM, then return to teleworking. The employee could then request two hours-worth of leave.

In fact, the DOL encourages employers and employees to collaborate to achieve flexibility and meet mutual needs and is supportive of such voluntary arrangements that combine telework and intermittent leave. However, it is important to remember if an employee no longer has a qualifying reason for taking paid sick leave under E-PSLA or E-FMLA before the paid sick leave is exhausted, the employee may take any remaining paid sick leave later if another qualifying reason occurs until December 31, 2020.

Overtime—An employee may be entitled to FFCRA paid leave for more than 40 hours in a workweek, if the employee would have normally been scheduled for more than 40 hours per workweek. However, there is not a requirement for payment for E-PSLA hours at a premium rate, or that the employee receive more than 80 hours total of paid leave under the E-PSLA.

**Shuffield Lowman anticipates changes to develop as both federal and Florida government responds to this unprecedented health emergency. We will provide updates as we are able in this developing legal situation and other COVID-19 related employment legislation that may be enacted in the coming weeks and months.

***Disclaimer: The information contained herein provides an overview of developing and ongoing legislation and does not constitute legal advice for any particular situation.

Is COVID-19 Considered a Force Majeure Event Under Landlord & Tenant Agreements?

Is COVID-19 Considered a Force Majeure Event Under Landlord & Tenant Agreements?

Landlords and tenants in commercial lease agreements are justifiably concerned about the payment of rent during the COVID-19 crisis. Tenants all over the state are finding themselves unable to pay rent, as well as other monetary obligations under their leases, either as a direct result of the virus or as a result of the various effects of the virus, and are thus left wondering whether they will be evicted from their homes or places of business. For example, the “stay-at-home” orders issued by various state, municipal, and county governments have required many businesses to shut down entirely, eliminating all of the income necessary for the business to keep up with its rent obligations. Meanwhile, many Landlords’ rely upon rent and other monetary amounts paid under the lease to pay off their own obligations, including the mortgage on the property being rented, and are understandably worried about whether they will be able to make the next mortgage payment.

For tenants, relief from upcoming rental payments may come in the form of a “Force Majeure” clause – a clause often contained in contracts, including commercial leases, which excuses performance for various “Acts of God.” However, one should strongly consider all of it’s various options before choosing to not pay rent and send a landlord notice of a Force Majeure event; the failure to pay rent may result in a default under the lease, which may have repercussions that outlast the current crisis.

 

Communicate First.
A tenant should not immediately assume that it’s facing a default under the lease simply because he or she cannot pay rent at the current rate. Instead, tenants should first reach out to their landlords and discuss options to avoid a default, such as a temporary deferment or abatement of rent obligations, or a temporary reduction in rent. Likewise, landlords should be reaching out to their lenders to discuss alternative repayment options during the crisis. Commercial lenders may often be less flexible in offering relief, but they also may not necessarily want to go through a foreclosure and take possession of a commercial property which they may not have the resources to manage, and where mortgage payments may resume shortly once things return to normal. Landlords should consider whether there are any obligations they might not be able to comply with, such as co-tenancy requirements, construction of improvements, or maintenance requirements, and negotiate relief from those obligations, as well. Ultimately, it is incumbent on all parties to work together now and avoid conflicts, which may end up far outlasting the COVID-19 crisis itself.

 

Consider what efforts have been taken by governments to prevent evictions or foreclosures.

While many governmental orders restricting evictions or foreclosures have focused specifically on residential properties, other governmental entities, such as local court systems, have entered orders creating moratoriums on foreclosure actions and eviction actions that may extend to the commercial context. For example, on April 2, 2020, Chief Judge Donald A. Myers, Jr. of the Ninth Judicial Circuit in Florida, serving Orange and Osceola counties, issued an administrative order suspending all foreclosure actions and sales until May 19, 2020. Such orders do not excuse rent payments or mortgage payments, but they may provide some additional leverage for tenants in negotiations with their landlords, and to landlords in negotiations with their lenders. In general, Court System closures, which have been enacted in various counties across Florida, also provide similar relief.

 

Review your lease for other provisions that may provide relief from payment obligations.

For example:

  • Provisions which provide for rent abatement in the event of loss of access to building or cessation of landlord’s services;
  • Condemnation/casualty provisions if they extend to loss of use due to governmental action or other loss of access to premises;
  • Co-tenancy requirements that may permit termination of a lease or a reduction in rent if a neighboring tenant is no longer in business;

 

Review insurance policies.

Landlords should review their rent loss coverages, and tenants should review their business interruption coverages.

 

What does the Force Majeure clause say?

Force majeure clauses will only be enforced based on their specific language, which can vary greatly from lease to lease. One should take time to review and understand the force majeure clause before taking any action.

  • Many force majeure clauses in commercial leases specifically exclude payment of rent or other monetary obligations from the type of performance that will be excused. If this is the case, the Force Majeure clause may not help a tenant who cannot pay rent, but may nonetheless be helpful in providing the tenant a break from other lease obligations, such as the obligation to remain in business, which may be impossible under the current circumstances.
  • What kind of events are covered? Force majeure clauses generally list the events that will trigger their effect. Common examples are natural disasters (tornadoes, floods, hurricanes, etc.), wars, riots, labor strikes, and governmental action. In the context of the COVID-19 crisis, the most important terms may be “pandemic,” “epidemic,” “illness,” or other related terms. If those terms are not listed in the force majeure clause, one may consider whether “governmental action” is listed, and whether such a triggering event has occurred considering the “stay-at-home” orders and other government-imposed restrictions which have so severely restricted what a business can do to stay afloat financially. Finally, Force Majeure clauses often contain general “catch-all” language meant to encompass any event that is “beyond either party’s control,” which could certainly cover many of the circumstances currently impacting business.

 

Why is the tenant unable to pay rent?

In order for a force majeure clause to excuse the payment of rent or other obligations under the lease, a tenant must be unable to pay rent as a result of the COVID-19 virus, governmental action, or other related circumstances beyond the parties’ control, as applicable. Some questions to ask here include: has someone at the tenant’s business contracted the illness, or has the location been in contact with an infected individual, such that the tenant will have to close its business for purposes of quarantining itself from the public? Has the tenant been ordered or mandated by a governmental entity to close its business?

Economic downturn is not a Force Majeure event – Something that has been an unfortunate result of the current circumstances has been an overall weakening of the economy and financial markets. This alone may not be a Force Majeure event that would excuse the payment of rent. This is a critical distinction for tenants who have been deemed providers of “essential services” for purposes of the “stay-at-home” orders issued by the various governmental authorities. Such tenants, such as restaurants and grocery stores, have been permitted to stay in business, but may nonetheless be experiencing financial strain due to reduced sales. In other words, their inability to pay rent may come more as a result of the economic downturn caused by the COVID-19 crisis, than as a result of the actual force majeure event (i.e. the actual virus itself, or the governmental action resulting therefrom). In that case, it is less certain whether a tenant can successfully claim force majeure.

With so many factors to take into consideration, it can be difficult deciding which avenue is the best to take. Our litigation and real estate teams are here to assist tenants and landlords with navigating this financially trying time by advising our clients their options based on the specific terms outlined in their contracts.

Contact us here.