Force Majeure and Covid: Implications on Tenancies and Rental Payments

force majeure

What happens when a tenant does not pay rent citing the financial impacts of the COVID pandemic?  Can such tenant rely on the force majeure provision in the lease to excuse the payment of said rent?  These questions arose in lease contexts throughout the pandemic and a recent Court of Appeal case weighed in on one such situation.  In West Pueblo Partners, LLC v. Stone Brewing Co., LLC (C.A. 1st, April 3, 2023.  Westlaw Cite: 2023 WL 3151827), the court found that West Pueblo Partners, LLC (“Landlord”) could bring an unlawful detainer action to evict Stone Brewing Co., LLC (“Tenant”) and Tenant was not excused from paying rent due to a force majeure event, specifically the COVID pandemic.

In West Pueblo, Tenant operated a brewery and restaurant that was shut down in different capacities due to COVID restrictions during 2020 and 2021.  Tenant alleged they did not have to (and in fact did not) pay rent citing the force majeure provision in the lease which stated in relevant part “if a party is delayed from performing any of its obligations under the lease due to act of god or governmental act, then the time for performance of such party shall be extended for an equivalent amount of time.”  Tenant argued the governmental regulations and business interruptions triggered the force majeure provision and they were excused from paying rent during such time period.

The Court of Appeal reviewed the force majeure provision in the lease (which, to note, did not include a typical qualification that the payment of rent is always required regardless of any force majeure event) and found that if the force majeure event had effectively stopped Tenant from paying rent, that is one thing (for example, a snowstorm blocked the ability to send a wire), but here they had the financial means and chose not to pay the rent due to COVID restrictions and negative impacts on their business.  The Court of Appeal also dug into prior cases analyzing force majeure provisions generally and reiterated that “the qualifying event must have still caused a party’s timely performance under the contract to become impossible or unreasonably expensive.”  The Court of Appeal found that force majeure events which merely make performance unprofitable or more difficult or expensive do not suffice to excuse a contractual obligation.

The West Pueblo court did repeatedly note that Tenant admitted it had the financial means to pay the rent but elected not to do so.  This was a relevant consideration for the Court of Appeal when it reviewed other (out of state) cases on the subject which held certain tenants were excused from paying rent due to COVID and force majeure considerations.  In those cases, the tenants could not pay rent due to COVID because they did not have the financial ability to do so.  Here, Tenant was a company with multiple operations and admitted it could have paid the rental amounts due, but obviously had dramatically less income due to the restrictions.

The West Pueblo case highlights that although a party’s performance may be delayed if they are unable to act due to the force majeure event, it does not necessarily excuse them from performing said action if it was just more expensive or much harder to do so.  It must be impossible or egregiously expensive to comply in order to warrant excusing a contractual obligation.  Even COVID restrictions, which decimated restaurants’ ability to make money, do not necessarily insulate such tenants from their obligations under their leases.  This is especially true if the tenant objectively has the means to make the rental payment otherwise.

 

Authored by Reuben, Junius & Rose, LLP Attorney Lindsay Petrone.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

San Francisco Façade Safety Requirements

safety

In 2016, the San Francisco Building Code (“Code”) was amended to require that the façades of certain buildings of five or more stories be inspected periodically by a licensed architect or engineer and that a Façade Inspection and Maintenance Report (“Report”) be submitted to the owner and the Department of Building Inspection (“DBI”). The Code requires the maintenance of façades in accordance with an Administrative Bulletin based on a national standard. The intent of the program is to identify current unsafe conditions that could jeopardize public safety if façade elements fall onto streets and sidewalks below. It is also intended to identify conditions that could deteriorate into unsafe conditions before the next inspection.

The requirements apply to Type I, II, III, and IV buildings. Buildings of other construction types and fewer than five stories may voluntarily comply. For inspection of buildings considered to be historic resources, the qualified professional must have expertise in structural inspection and maintenance of historic resources. Reports are to be submitted based on the schedule below, and then at least every 10 years thereafter. Reports for inspections and maintenance work conducted within 10 years of the deadline satisfy the reporting requirement. Buildings constructed under a permit submitted after January 1, 1998 are exempt from having to conduct an initial inspection, but are required to begin periodic inspections 30 years from the issuance of the Certificate of Final Completion for the building.

Where a building experiences significant damage due to earthquake, weather, or the passage of time, an inspection must be done within 60 days of discovery of the damage, in addition to immediate action to address the damage. Significant damage includes items that have fallen from a building or items that have cracked or dislodged to become potential falling hazards.

It is important to note that buildings built before 1910 were required to submit Reports by December 31, 2021. DBI has alerted the public that in order to avoid penalties, property owners should get started with Reports right away. The next deadlines are as follows:

  • Buildings built between 1910 and 1925: December 31, 2023
  • Buildings built between 1926 and 1970: December 31, 2025
  • Buildings built after 1970: December 31, 2027

Reports may be submitted by email to dbi.facade@sfgov.org, or to DBI in person or by mail at 49 South Van Ness Avenue, Suite 500, San Francisco, CA 94103. DBI is to respond to the Reports within 60 days to confirm whether additional information is required and to confirm dates for additional inspections and reports. Once a Report is approved, the owner/owner’s representative will be contacted to pick up the acceptance letter and pay the associated fees. Reports are not deemed complete until all associated fees have been paid.

For more about this program, property owners can visit DBI’s Façade inspection and maintenance program page.

 

Authored by Reuben, Junius & Rose, LLP Attorney Jody Knight.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

The Basics: Construction Logistics Agreements

construction

Real estate developers often require agreements from neighboring property owners to coordinate logistical issues during construction. This is particularly true for infill projects in dense urban neighborhoods, where structures are frequently built to the property line and adjacent to existing buildings.  Developers are well-served by considering the logistical needs of their projects during the entitlement period, so that they may begin negotiations with adjacent property owners.  Doing so provides the opportunity to adjust their projects and/or budgets if it appears that obtaining necessary agreements may prove difficult or financially burdensome.

Several topics immediately come to mind when considering what kinds of agreements may be required from neighboring property owners:

Excavation

Whenever a property owner intends to undertake excavation on its property, it is required to provide notice to neighboring property owners that states (a) the depth of the planned excavation, and (b) the date when excavation will begin.  When “excavation is to be of a greater depth than are the walls or foundations of any adjoining building or other structure, and is to be so close as to endanger the building or other structure in any way,” the adjacent property owner must be provided at least 30 days’ notice to protect its property from damage, and it must be given a reasonable license to enter onto the property where excavation will occur in order to do so.  Cal. Civ. Code § 832(3).

The tables turn, however, when the “excavation is intended to be or is deeper than the standard depth of foundations, which depth is defined to be a depth of nine feet below the adjacent curb level. . . .”  Cal. Civ. Code § 832(3).  In that case, the excavating owner has the burden to protect the adjacent structure(s) without cost to the adjacent property owner, provided that the adjacent owner provides a license for the excavating owner to do so.  If damage occurs to the adjacent building during the excavation, the excavating owner may be liable for such damage, except for minor settlement cracks.

When a project requires a deep excavation, the developer’s engineering team typically prepares a shoring plan.  Tiebacks are often used to support the shoring system, as an alternative to internal bracing.  When tiebacks will be placed under the land of an adjacent property owner, the developer must obtain the adjacent property owner’s agreement to the installation.  An agreement is also required if the tiebacks will remain in place after construction.

The form of the negotiated agreement – license or recorded easement – is largely determined by what will happen to the tiebacks after the completion of construction.  If title to the tiebacks will remain with the developer, a recorded easement will be required.  If such title will pass to the adjacent owner, a license agreement may be sufficient.  In either event, the developer should consider how removal of the tiebacks will be handled in the event that below-grade construction on the adjacent property later occurs.  If the tiebacks will be removed, the developer may want to retain control over the removal process, and have an opportunity to repair any damage to waterproofing or other building systems when removal occurs.  It is advisable to consider such issues when the tieback agreement is negotiated.

Pre-Construction Inspection

Given that a developer may be liable for damage caused to an adjacent structure during excavation, it should document the pre-construction condition of the interior and exterior of the building.  Developers should request the right to conduct such an inspection during initial negotiations with the adjacent property owner.  If there is a dispute later, the pre-construction survey provides the best evidence of the condition of the adjacent building before construction activities commenced.

Settlement Monitoring

We recommend that excavating developers monitor whether settlement is occurring on adjacent properties during the course of its excavation and other construction activities.  The developer should negotiate the right to establish survey measurements on the exterior elevation of neighboring buildings, and should periodically determine if settlement has occurred.  Consultation with experts will help determine what level of settlement is acceptable, and at what threshold work should stop so that the impact of any settlement may be evaluated.

Crane Installation and Operation

A mobile crane may be sufficient to facilitate the construction of smaller projects.  In those cases, developers should consider where the mobile crane will be placed and for what period(s) of time.  It may be necessary to negotiate with an adjacent property owner to allow the crane to be temporarily placed on the adjacent property.  Developers should be mindful that some jurisdictions require a neighbor agreement for issuance of a street space permit if the mobile crane will be placed in the adjacent right of way.

Most larger projects require the use of a tower crane.  Generally speaking, an agreement from a neighboring property owner is not required if a tower crane will merely weathervane over an adjacent property, and will not carry live loads over neighboring land.  However, when other negotiations are being undertaken, it is advisable to incorporate a crane swing agreement when a tower crane will be used.

Scaffolding

When a developer’s construction will require the installation of ground-supported scaffolding over the boundary line with an adjacent property, it is necessary to secure consent from the adjacent property owner.  If cantilevered scaffolding will be installed as vertical construction progresses, or if a swing stage may be used during construction, it is recommended that an agreement be negotiated notwithstanding legal authorities concerning the use of airspace over adjacent land.

Flashing/Waterproofing

In circumstances where a new building will abut an adjacent building, the developer often wants to install flashing or other waterproofing between the buildings.  Where the installation will require access to the adjacent building or the flashing assembly will cross the boundary line between the properties, an agreement should be negotiated.  It is advisable for developers to conduct that negotiation during the pre-construction negotiations of other agreements, rather than undertaking such negotiations near the end of the construction process.

Developers should also consider post-installation maintenance when negotiating for the installation of flashing.  A complete agreement will outline whether one or both property owners has the obligation to maintain, repair and/or replace the flashing in the future, who will bear the associated costs, and what happens in the event that the flashing and/or one of the buildings is damaged by a casualty.

Post-Construction Maintenance

A project’s need for access to an adjacent property may not end when construction is complete.  That is particularly true with lot-line buildings, where it may be necessary to use a swing stage to clean and maintain the building’s exterior.  Developers should consider post-construction operational issues, and negotiate with adjacent owners about them during pre-construction negotiations.

Indemnity and Insurance

Risk allocation is a necessary part of any construction logistics agreement between adjacent property owners.  Developers should be mindful that the owner of the neighboring property will likely expect to be named as an additional insured under the developer’s liability insurance policies.  The express indemnity language in the agreement may control the scope of the insurance coverage that the neighbor receives.  One of the developer’s goals should be to avoid assuming uninsured liabilities.

When the relationship between the developer and the adjacent property owner will continue after the completion of construction – through a post-construction maintenance agreement, access agreement, or otherwise – consideration should be given to indemnity and insurance obligations, going forward.  In particular, the developer should consider whether and to what extent it may reduce the amount of liability insurance it carries after construction.  A high-limit Owner-Controlled Insurance Program (OCIP) will likely be replaced with a Commercial General Liability (CGL) policy with lower limits, in keeping with the operation of a commercial building.  The agreement should account for such reduction in coverage.

Dispute Resolution

Developers may also wish to negotiate about how construction and other disputes with an adjacent property owner will be resolved.  Mediation followed by judicial reference – a hybrid between litigation and arbitration – may provide the best opportunity for parties to reach a compromise of issues between them, while avoiding the cost and other pitfalls of litigation.

Existing Conditions on Adjacent Property

When a developer negotiates for what it requires to construct its project, it should consider how the construction activities may impact the adjacent building.  If the adjacent property has lot-line windows that must be closed, for example, the developer may benefit from offering the adjacent property owner the opportunity to perform that work.  In some cases, the adjacent owner may appreciate site access to waterproof the exterior of its building (above-grade and/or below grade).  Goodwill may be gained by offering to provide such accommodation, as long as work on the project is not materially delayed.

Every project presents its own construction challenges and logistical needs.  We recommend that developers evaluate those challenges and needs early, so that there is sufficient time to negotiate any agreements with neighbors that may be necessary for the project to proceed.  Forward-thinking developers benefit from early negotiations because they have an occasion to build goodwill with their neighbors, make adjustments to their project as may be necessary to accommodate neighbor concerns, and work around challenges when negotiations fail.  They are also able to negotiate from a position of strength and negotiate an agreement that benefits their project as well as the owner of the adjacent property.

 

 

Authored by Reuben, Junius & Rose, LLP Attorney Corie A. Edwards.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

No Parking? No Problem. Property Owner Not Liable for Failure to Provide On-Site Parking

on-site

A case recently discussed a property owner’s duty to a third party visitor, more specifically a possible duty to a third party who incurs an off-property injury due to an alleged deficiency at the owner’s property itself.  In Issakhani v. Shadow Glen Homeowners Association, Inc. (“HOA”), the plaintiff tried to park at the property (owned by the HOA) but there was no more guest parking available (and likely too few guest parking spaces to begin with at the property), so she parked across the busy street at an off-site location.  63 Cal.App.5th 917 (2021).  Plaintiff jaywalked to cross the street to get to the property and was hit by a car and suffered severe injuries.  The Court of Appeal ultimately held that the property owner did not have a duty of care to protect the plaintiff from an accident that occurred as she travelled to the premises.

The Court analyzed the standards for negligence and duty of care.  Claims for negligence or premises liability for injury at a property rely on the same analysis – was there a duty of care?  Was there a breach of that duty?  If yes to the first two, was such breach the cause of the person’s injuries?  The Court referenced the common law that a property owner does have a duty to maintain the land in its possession and control in a reasonably safe condition as to avoid exposing others to an unreasonable risk of injury.  The Court elaborated that such duty of care can extend to a responsibility to avoid exposing persons to risks of injury that occurs off-site if the landowner’s property is maintained in such a manner as to expose persons to an unreasonable risk of injury off-site.

Here, the Court did state that a landowner has a duty of care not to maintain conditions on its property that exacerbated the dangers of invitees entering or exiting the property.  However, they rejected the theory that the absence of adequate on-site parking, by itself, amounted to a condition on the property that exacerbates the off-site danger to invitees and gives rise to an actionable duty.  They found that although there was a foreseeability of harm to the plaintiff with reasonable degree of certainty due to lack of sufficient parking and possible injury when coming to the property, there was not a closeness of connection between the defendant’s conduct and the injury suffered.  More specifically, they found that the plaintiff’s actions – selecting an off-site parking location on the far side of a busy street and then jaywalking – was more a product of plaintiff’s decisions rather than simply a lack of on-site parking at the HOA’s property.

In addition to the analysis of common law elements, the Court also relied on a prior case which directly held that a landowner does not have a duty to provide invitees with on-site parking in order to protect from the dangers of crossing nearby streets to get to the property.  Finally, they found that public policy guarded against finding for the plaintiff as a property owner is sometimes limited by a finite amount of parking and cannot necessarily always provide enough on-site parking for guests and invitees.

Issakhani reminds us that a landowner should be cognizant of possible unsafe conditions at their property which could expose them to liability.  The Court will analyze whether there was a duty and foreseeability of harm to the third party based on the maintenance of one’s own property and a close connection between the risk and injury suffered.  This could also include liability for injuries off the property if directly caused by an unreasonable risk at one’s own property.  However, this case highlights that one cannot cover each and every contingency and someone’s choice to make a riskier decision (here jaywalking across a busy street) will likely not be held against the property owner.

 

Authored by Reuben, Junius & Rose, LLP Attorney Lindsay Petrone.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.