The Impact of Coronavirus Upon Commercial Contracts and Leases

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The Impact of Coronavirus Disease (COVID-19) Upon Commercial Contracts and Leases

The devastating impact the Coronavirus Disease (COVID-19) pandemic crisis has had and is continuing to have upon other parts of the world, as well as here at home in Australia, has been truly heartbreaking. The end is not yet in sight and there remains great uncertainty. The extreme radical measures all of us have had to adopt to combat and slow the spread of the virus while a vaccine can be developed are unprecedented, and have disrupted all aspects of life as we used to know it.

Directions made by Queensland’s Chief Health Officer, including to require many businesses to cease operating

On 27 March 2020, Queensland’s Chief Health Officer, Dr Jeannette Young, made a further direction pursuant to emergency powers under the Public Health Act 2005 (Qld) to assist in containing, and to respond to, the spread of Coronavirus within the community – the ‘Non-essential business, activity and undertaking Closure Direction (No. 3)’ – which presently is to remain in effect to at least 19 May 2020, with the real possibility that this timeframe may be extended.

This direction requires many businesses to cease operating, with very limited exceptions. The businesses affected include pubs, licensed clubs and hotels (excluding accommodation), places of worship, gyms, indoor sporting venues, cinemas, beauty salons, play centres and other public places – all of these must be closed. There are restrictions on attendance at weddings, funerals and outdoor fitness classes. Restaurants and cares may only serve takeaway and home delivery. Supermarkets and pharmacies remain open. At the end of this article is a full list of the businesses affected, and details of the exceptions.

It is the 11th direction made by Queensland’s Chief Health Officer in response to the Coronavirus outbreak crisis. It will not be the last. The previous directions which remain in effect include social distancing, home confinement requirements, restricting gatherings to maintain accessible space to no more than one person per 4 square metres, and also that anyone, including returning residents, who arrives from overseas or interstate must self-quarantine for 14 days.

Anyone who fails, without reasonable excuse, to comply with the directions commits an offence, which carries a maximum penalty of $13,345.

Prime Minister’s announcement of temporary ban on evictions

On 29 March 2020, Australia’s Prime Minister, Scott Morrison, announced that the previous gathering limit of 10 people has been cut to two (unless they are your household members), and that the States and Territories would be moving to put a temporary ban on evictions of people and businesses unable to meet their commitments due to financial stress. The measures to be imposed in this respect have not yet been revealed. The Prime Minister said:

‘Now there is a lot more work to be done here and my message to tenants, particularly commercial tenants, and commercial landlords, is a very straightforward one. We need you to sit down, talk to each other and work this out, about looking at the businesses which may have been closed, businesses that may have had a significant reduction in their revenues and we need landlords and tenants to sit down and come up with arrangements that enable them to get through this crisis.’

Impact upon Businesses and Contracts

The extreme impact and disruption of the Coronavirus upon businesses, especially supply chains, has brought new attention to the applicability of contractual clauses and remedies which previously have only rarely been brought into play, including frustration and force majeure clauses. The forced business closures would assist parties seeking to rely on frustration or a force majeure clause to excuse performance of contractual obligations.

Stone Group Lawyers has been inundated with inquiries from businesses about such contractual rights, and also the availability of rent relief, employer obligations, how insolvency and bankruptcy may be avoided, the availability of business interruption insurance cover, the availability of Government economic relief packages, Australian Consumer Law guarantees and rights including with respect to cancellations and how to mitigate the worst economic effects of the virus. We expect these issues to continue to intensify. All businesses, landlords and tenants and parties to commercial contracts should be seeking advice and reviewing the terms of their contracts to ensure they understand their rights and obligations and options, and, as encouraged by our Prime Minister – to sit down and talk to each other to work out how to get through this terrible time together.

Frustration

The advent of unforeseeable circumstances beyond anyone’s control rendering a contractual obligation incapable of being performed, without any party being at fault, can cause a contract to be frustrated. It is necessary that it becomes impossible or illegal to perform the contractual obligation, not just more difficult or expensive or with delay. Frustration automatically terminates the contract, with both parties being relieved of their obligations under it. Under the common law in Queensland, upon the occurrence of the frustrating event, losses lie where the fall, all obligations including payment obligations cease. No party can claim damages for non-performance because no party is at fault. A party may have a claim for restitution for any services rendered after the frustrating event which results in the conferral of a benefit.

The terms of each contract and the factual circumstances of each case must be specifically considered. The key question is whether the impacts of Coronavirus and the measures as directed by the Government and any further measures that may be required having regard to the unique circumstances of each case make performance of the contractual obligation impossible, or only more difficult or onerous. If the contractual obligation can still be performed but will take longer or will involve an increased cost, then it is unlikely that frustration will apply.

The consequences of wrongfully asserting frustration may be severe – this may amount to an anticipatory breach or repudiation of the contract, giving the other party the right to terminate the contract and claim damages. We recommend that you give careful consideration and seek legal advice before asserting frustration.

If the contract contains a Force Majeure clause that can deal with the issue, then the contract will not be frustrated.

Force Majeure

A Force Majeure clause seeks to prevent the contract from becoming frustrated.

A Force Majeure clause provides for situations where a party is prevented from performing their contractual obligations due to events or circumstances beyond their control, allowing the party to cease or suspend performance of their obligations, subject to conditions, to keep the contract on foot. Many commercial contracts may have force majeure clauses, but this is not always the case. You will only be able to rely on a Force Majeure clause if one is included in the contract and it applies to your circumstances.

A Force Majeure clause is typically drafted to apply to specified events. As Coronavirus is new disease, it will not have been specifically contemplated, and so it would be necessary to identify how the impacts of the Coronavirus and/or the measures directed and/or required to combat the virus fall within the specified events and the scope of the relevant Force Majeure clause. Upon the Force Majeure clause applying and being invoked, it would typically then set out a procedure to be followed to effectively claim relief under the clause, and often seeking for the contract to remain on foot and not be terminated, but also often giving the other party additional rights, which may include a right to terminate.

Examples of Force Majeure clauses that would likely apply to the forced business closures if included in the relevant contract would be clauses that specify events such as pandemics, epidemics, quarantine, forced closures, forced cessation of operations, government actions and work stoppages.

No Force Majeure clause is the same, and so each such clause and the factual circumstances of each case must be specifically considered. Before invoking a Force Majeure clause careful consideration should be given to all of the other options available and whether invoking the clause would be the best decision.

Leases

Where a retail or commercial or residential lease does not have a Force Majeure clause, the Prime Minister’s announcement that there will soon be a temporary ban on evictions of people and businesses unable to meet their commitments due to financial stress, should avoid many instances where leases may otherwise be frustrated due to the Coronavirus or may otherwise be terminated. With the Prime Minister’s encouragement for parties to leases to sit down and talk, there is an opportunity for terms to be renegotiated in good faith.

Ready to help

It is important that businesses seek legal advice in navigating the legal and commercial issues arising and risks at stake, in making decisions in response to the Coronavirus and the measures to be taken. Stone Group Lawyers are here to help. Call 1300 088 440 to arrange your free 30 minute consultation for new clients via phone, Facetime, Skype or Whatsapp.

List of businesses directed to cease operating, and exceptions

Business, activity, undertaking, premises or place – directed to cease operating

Exceptions

Food and drink

Cafes, restaurants, fast-food outlets, food courts (together retail food services)

  • Takeaway service and home delivery can remain operational. All takeaway services must comply with the additional requirements set out below.
    • Retail food services at an airport that are reasonably necessary for the normal business of the airport, with social distancing observed.
    • Provision of food or drink by or on behalf of an employer to employees or contractors that is reasonably necessary for the employer’s normal operations, with social distancing observed.
  • Workplace canteens can provide takeaway, with social distancing observed.
    • Provision of food or drink by a school, university, educational institution or childcare facility that is reasonably necessary for the normal business of the facility, with social distancing observed.
  • Provision of food or drink at a hospital, prison, military facility, disability facility, resources sector facility including a canteen or mess hall or aged care facility that is reasonably necessary for the normal business of the facility, with social distancing observed.
  • Services providing food or drink to the homeless, with social distancing observed.
  • Hotel room service or similar services for hotel guests.

Additional requirements for the provision of takeaway are as follows:

  1. Social distancing, including keeping 1.5 metres between people must be accommodated, implemented and monitored by employees or contractors of the retail food service provider;
  2. Gathering for the purposes of ordering or collecting must not exceed one person per 4 square metres;
  3. The retail food service provider may only operate to the extent they are not promoting or facilitating persons consuming takeaway food or drink on or adjacent to their premises. Example: tables and chairs should be removed and all reasonable steps taken by the retail food service to direct persons away from gathering to consume takeaway food or drink on or adjacent to, the relevant premises.

Retail

Auction houses

 

Real estate auctions and open house inspections

Private appointments for inspection.

Outdoor and indoor markets

Food markets and farmers markets may continue to operate

Weapons

Licensed armourers and licensed dealers as defined under the Weapons Act 1990

 

Beauty and personal care services

Hairdressers and barber shops

Can remain operational with no more than one person per 4 square metres, with social distancing observed to the extent possible.

Beauty therapy, tanning, waxing and nail salons, and tattoo parlours

 

Spas and massage parlours

Health services provided by health practitioners registered under the Health Practitioner Regulation National Law, with social distancing observed to the extent possible.

Entertainment venues

Registered and licensed clubs, licensed premises in hotels

Bottle shops and off license premises attached to venues may continue to operate, with social distancing observed.

Golf clubs may continue to operate for outdoor sporting-based activities, with social distancing observed.

Cinemas, nightclubs

 

Casinos, gaming or gambling venues including wagering outlets that are open to, and accessible by, members of the public such as TAB agencies and retail outlets

 

Strip clubs, brothels and sex on premises venues

 

Concert venues, theatres, arenas, auditoriums, stadiums

Live streaming of a performance by a small group is permissible, with social distancing observed.

Theme parks, amusement parks and amusement arcades

 

Play centres (indoor and outdoor)

 

Leisure and recreation

Community and recreation centres

Facilities may remain open for the purpose of hosting essential voluntary or public services, such as food banks or homeless services, with social distancing observed.

Boot camps, personal training

Limited to groups of no more than 10 people for outdoor events, with social distancing observed. [We expect this will now be reduced to no more than 2 people per the Prime Minister’s announcement].

Indoor sporting centres, including gyms, health clubs, fitness centres, yoga, barre and spin facilities, saunas, bathhouses and wellness centres

 

Social sporting-based activities

Limited to groups of no more than 10 people for outdoor events, with social distancing observed. [We expect this will now be reduced to no more than 2 people per the Prime Minister’s announcement].

Swimming pools including public pools and pools in shared facilities such as hotels and apartments

A swimming pool located in a private residential dwelling for the use of the occupants of the dwelling such as a backyard pool.

Residential facilities

Hostels, bed and breakfasts, and boarding houses

May continue to operate for permanent residents and workers of the facility, with social distancing observed.

Limited to no more than 5 people in common areas such as lounge rooms and shared facilities, with no more than one person per 4 square metres.

Limited to no more than 10 people in an outdoor area, that is part of the facility, or near the facility, with social distancing observed. [We expect this will now be reduced to no more than 2 people per the Prime Minister’s announcement].

Outdoor recreation

Caravan and camping parks

Where people live permanently in caravan parks or are staying in caravan parks as interim abodes where their primary residence is not available, they may continue to do so, with social distancing observed.

Campgrounds

 

Zoos and wildlife centres

For the purpose of maintenance and care for the animals.

Non-residential institutions

Galleries, museums, national and state institutions and historic sites

 

Libraries, community centres, and youth centres

Community hubs in remote communities may continue to operate if they are essential for distributing health or medical information or education to the community, with social distancing observed.

Local government non-essential facilities and services (such as libraries and pools)

 

Community facilities (such as community halls, clubs, RSLs, PCYCs)

Community hubs in remote communities may continue to operate if they are essential for distributing health or medical information or education to the community, with social distancing observed.

Community facilities may continue to operate if they provide formal out of school hours care, with social distancing observed.

Places of worship, weddings and funerals

Weddings with a maximum attendance of no more than 5 people being the celebrant, couple and two witnesses with no more than one person per 4 square metres.

Funerals attended by a maximum of no more than 10 people with no more than one person per 4 square metres, except if an exemption is granted on compassionate grounds by the Chief Health Officer.

 

Berren Hamilton

Berren Hamilton is a Special Counsel (Litigation) at Stone Group Lawyers. He is an Accredited Specialist in Commercial Litigation with the Queensland Law Society. He was admitted to practise in Queensland in 2001.

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