January 22, 2021
The case arises from a property damage claim reported under a policy of insurance issued by Citizens following Hurricane Frances in 2004. The Citizens policy insured nine apartment buildings owned by Manor House that were damaged by the hurricane. Citizens issued significant payments for repairs in the course of the claim and additional payments after receiving a request to reopen the claim. At some point after the claim was reopened, a dispute arose regarding whether Citizens owed yet additional sums under the policy. Manor House filed suit seeking payment of allegedly “undisputed amounts” and seeking to compel appraisal. The matter proceeded through appraisal, after which Citizens issued an additional net payment on the appraisal award. However, Manor House still proceeded to again file suit, claiming breach of contract and even fraud. The damages sought in the breach of contract claim included consequential damages, allegedly for lost rental income. The trial court agreed with Citizens that the fraud claim was barred by the independent tort doctrine and granted judgment on the pleadings as to that count. It also granted partial summary judgment for Citizens as to the lost rental income at issue in the breach of contract count, finding the policy covered property damage but not lost rent.
In the initial appeal, the Fifth District Court of Appeal affirmed the trial court’s ruling on the fraud claim, holding that claim was barred both because (1) it failed to plead a tort claim that was independent of the breach of contract claim, and (2) in substance it alleged a claim for bad faith and unfair claim handling, for which Citizens is immune as a governmental entity. However, the Fifth District reversed the partial summary judgment on the lost rent claim at issue in the breach of contract count, holding that the “consequential damages Manor House seeks are based squarely on breach of contract claims,” and did not implicate bad faith. See Manor House, LLC v. Citizens Property Insurance Corp., 277 So. 3d 658 (Fla. 5th DCA 2019), quashed by SC19-1394 (Fla. Jan. 21, 2021).
On review, the Florida Supreme Court honed in on the question of great public importance certified by the Fifth District on rehearing: “IN A FIRST-PARTY BREACH OF INSURANCE CONTRACT ACTION BROUGHT BY AN INSURED AGAINST ITS INSURER, NOT INVOLVING SUIT UNDER SECTION 624.155, FLORIDA STATUTES, DOES FLORIDA LAW ALLOW THE INSURED TO RECOVER EXTRA-CONTRACTUAL, CONSEQUENTIAL DAMAGES?” Citizens Property Insurance Corporation v. Manor House, LLC, SC19-1394, 2021 WL 208455 (Fla. Jan. 21, 2021).
In the Florida Supreme Court’s recent decision, it decisively answered, “No.” In so holding, the supreme court concluded “extra-contractual, consequential damages are not available in a first-party breach of insurance contract action because the contractual amount due to the insured is the amount owed pursuant to the express terms and conditions of the policy. Extra-contractual damages are available in a separate bad faith action pursuant to section 624.155 but are not recoverable in this action against Citizens because Citizens is statutorily immune from first-party bad faith claims.” Id. The supreme court also emphasized that in a first-party insurance claim, the contractual amount owed is the amount due under the terms and conditions of the policy. Thus, a crucial fact was that the particular policy did not provide coverage for lost rental income. As a result, Manor House could not seek damages in a breach of contract action for “consequential damages” for lost rent, when the same simply was not covered under the policy. Any such consequential damages were thus, by definition, “extra-contractual” damages of the type that could only be sought in a well-pled, ripened bad faith claim brought pursuant to §624.155, Fla. Stat. But because Citizens is ordinarily immune from bad faith, Manor House’s claims simply failed as a matter of law under any view. Accordingly, the Florida Supreme Court quashed the Fifth District’s decision on the breach of contract count and remanded for proceedings consistent with its opinion. (The Fifth District’s ruling on the fraud count was not addressed by the supreme court and remains good law).
The Florida Supreme Court’s holding in Manor House vindicates and upholds an insurer’s right to enforce the terms and limits of the policy contract. This is immensely significant, especially in the current litigation age where the Plaintiffs’ Bar has increasingly trended toward attempting to inject “disguised” bad faith claims and claims for consequential, extra-contractual damages, into what should be straight-forward breach of contract claims. The supreme court’s decision in Manor House should go a long way to stopping such claims and tactics in their tracks. Thus, the holding should have a decidedly favorable impact on defending first-party claims of any type, whether they be claims for property damage, uninsured/underinsured motorist (UM) benefits, and even personal injury protection (PIP) claims.
January 20, 2021
In the Wilsonart decision, the Florida Supreme Court did not actually invalidate or re-interpret existing law; instead, it merely approved of adopting the Celotex standard. Therefore, practitioners should be prepared for “growing pains” among judges at the trial court level and in the district courts of appeal in navigating this new standard and making decisions accordingly in summary judgment proceedings, until a more concrete standard is created, applied, and trickles down through the Florida court system.
The amended Rule 1.510 takes effect on May 1, 2021, allowing practitioners and interested parties a chance to publicly comment on the proposed rule change. Because the new rule language as presently proposed is broad, the possibility exists the language will be refined to further clarify the precise standard for summary judgment. In the interim, Florida's summary judgment jurisprudence remains in effect.
In the short term, parties should focus in applicable cases on having previously-denied Motions for Summary Judgment reconsidered after May 1. However, the costs and benefits of doing so should be weighed on a case-by-case basis, keeping in mind the true magnitude of this decision is highly dependent on how Florida appellate courts apply Celotex. As a result, months or more may elapse before defense lawyers are able to fully evaluate how this new standard will affect case strategy moving forward.
Kubicki Draper’s Angela Flowers wrote an amicus brief in support of the adoption of Celotex on behalf of the Federation of Defense and Corporate Counsel. The attorneys at Kubicki Draper are prepared to discuss this noteworthy development and answer questions about how it may impact case handling and strategy after May 1, 2021.
January 6, 2021
January 5, 2021
December 21, 2020
December 17, 2020
October 7, 2020
UPDATED INFORMATION FOR FLORIDA COURTS
STATE COURTS08/12/2020 Amendment 6 to AOSC20-23 - Order on COVID emergency measures in the state courts
08/12/2020 Amendment 3 to AOSC20-32 COVID-19 health & safety procedures in the state courts
- Providing updated criteria for the transition to different phases
- Requiring a human resources policy at each court to address potential COVID-19 exposure of court employees and judges
- Updating health screening criteria for entry into a courthouse
- Providing updated guidance for courts in monitoring local conditions and public health data when expanding in-person proceedings
- Providing a methodology to determine deteriorating local health conditions that would require an amendment to a local operational plan or a return to an earlier phase
10/2/2020 Amendment 7 to AOSC20-23 - Order on COVID emergency measures in the state courts
9/30/2020 Amendment 1 - AOSC20-12 - Order on monitoring and planning in response to COVID-19
FLORIDA SUPREME COURT
Statewide grand jury proceedings shall remain suspended through July 26, 2020.
All other jury proceedings, including grand jury proceedings, jury selection proceedings, and criminal and civil jury trials, shall remain suspended until 30 days after the chief judge of a judicial circuit has determined that the circuit or a county within the circuit has transitioned to Phase 2 pursuant to Fla. Admin. Order No. AOSC20-32.
Essential and critical trial court proceedings should continue to be conducted remotely or, if necessary, in person.
In re: Remote Civil Jury Trial Pilot Program, Fla. Admin. Order No. AOSC20-31, judicial circuits selected to participate in the program may during and after COVID-19 conduct remote civil jury trials pursuant to the requirements established by the workgroup.
AOSC20-23 Updates new deadlines and address new Phase 3 guidelines - https://www.floridasupremecourt.org/ezs3download/download/639134/7265622
AOSC20-32 Establish a certification process for moving to Phase 3 - https://www.floridasupremecourt.org/ezs3download/download/639136/7265632
INTERMEDIATE APPELLATE COURTS
FIRST DISTRICT COURT OF APPEAL
- August and September Oral Arguments conducted on zoom video platform. The resulting video and audio will be available to the public on the court’s website at https://www.1dca.org/
- Following Florida Supreme Court directives.
SECOND DISTRICT COURT OF APPEAL
- The Second DCA will be conducting oral arguments remotely beginning in May.
THIRD DISTRICT COURT OF APPEAL
09/04/2020 Notice - THIRD DISTRICT COURT OF APPEAL BUILDING RE-OPENS TO THE PUBLIC
In view of the decline of the positivity rate for COVID-19 cases, and the related decline in hospitalizations and emergency department visits in our district, the Third District Court of Appeal, has met the Florida State Courts guidelines to advance to the next phase of post-COVID-19 reopening.
As a result, the courthouse building is now open to the public. The following safety requirements must be observed:
- Persons visiting the Clerk’s Office will be allowed entry after successful completion of a COVID-19 health screening and temperature check.
- While on the premises, all persons must wear a face covering and gloves. If needed, mask and gloves will be provided at no charge, at the security checkpoint.
- Current CDC social distancing guidelines must be observed at all times.
- The courtroom remains closed as oral arguments continue to be conducted remotely.
- All other visitors must make an appointment with the Marshal at (305)229-3200 ext.0.
- Attorneys and pro se litigants should continue to file documents electronically, via the Florida E-Filing portal at www.myflcourtaccess.com.
FOURTH DISTRICT COURT OF APPEAL
- The Court’s in-person oral argument sessions scheduled through July 28th have been canceled.
- Oral arguments which will be conducted by audio or video conference will be streamed for the public on the Court’s website.
- The court may reschedule future oral arguments or conduct oral argument by remote means.
- No oral arguments will be held in the month of August.
FIFTH DISTRICT COURT OR APPEAL
- Essential Hearings and Approved Non-Essential hearings are being conducted via electronic means.
- Following the directive of Florida Supreme Court.
CIRCUIT AND COUNTY COURTS
FIRST JUDICIAL CIRCUIT
09/10/2020 ESAD 2020-08 COVID-19 Escambia County Phase 2 Operations Effective 09.14.20
09/02/2020 AO 2020-35 COVID-19 Resumption of Full Phase 2 Operations and Employee Screening Policy
SECOND JUDICIAL CIRCUIT
- Supreme Court issued “Best Practices” guidelines on May 11, 2020, that were developed by a statewide COVID-19 Workgroup to help people navigate new remote procedures used by state courts in the coronavirus pandemic
- Court will reschedule proceedings or arrange for remote capabilities
- Mediation may be conducted by video conference or telephone when possible.
- Following Florida Supreme Court directives
THIRD JUDICIAL CIRCUIT
- Non-essential proceedings to be held remotely, if possible.
- Jury trials suspended.
- Zoom video tutorials https://support.zoom.us/hc/en-us/articles/206618765-Zoom-Video-Tutorials
FOURTH JUDICIAL CIRCUIT
- AO 2020-18 Extension of Phase II Operational Plan for COVID-19 Emergency Through July 31, 2020
- All criminal and civil jury trials are suspended through July 31, 2020
- The Phase II Operational Plan is attached to this Order as Appendix A.
- Hearings shall be conducted either by telephonic means or video conference utilizing the Zoom Application or Skype.
FIFTH JUDICIAL CIRCUIT
03/24/2020 AO A-2020-12-C:
- Non-essential hearings to be conducted electronically.
- Following Florida Supreme Court directives.
SIXTH JUDICIAL CIRCUIT
- Following Florida Supreme Court directives. https://www.floridasupremecourt.org/content/download/637271/7239420/AOSC20-23%20Amendment%203.pdf
- The Florida Supreme Court has extended the suspension of all criminal and civil jury trials from July 2 through July 17, 2020.
- All time periods involving the speedy trial procedure from July 6 through July 20 for all criminal and juvenile court proceedings.
NEW ORDERS SETTING HEALTH AND SAFETY MEASURES IN COURTS
AOSC20-23 Amendment 2 Comprehensive COVID-19 Emergency Measures
AOSC20-32 In re COVID-19 Public Health and Safety Precautions for Phase 2 expands the type of hearings that can be held face-to-face when the Circuit meets the criteria.
The Sixth Judicial Circuit Covid-19 Information and Updates http://www.jud6.org/Covid-19Information07062020.pdf.
SEVENTH JUDICIAL CIRCUIT
07/02/2020 Re: Phase 2 Transitions for Court Facilities
EIGHTH JUDICIAL CIRCUIT
07/27/2020 AO 11.35
- Alachua County transitioning to Phase 2 effective 07/28/2020
NINTH JUDICIAL CIRCUIT
- Jury trial to resume in October
Continued updates on the Tenth - Twentieth Judicial Circuit and Federal Courts here.
October 7, 2020
TENTH JUDICIAL CIRCUIT(Hardee, Highlands, and Polk Counties)
- Statewide grand jury proceedings are suspended through July 26, 2020; and other jury proceedings, jury selection proceedings, and criminal and civil jury trials are suspended through July 17, 2020.
- All non-essential and non-critical proceedings shall be conducted using remote technology.
- General Procedures (outlined in AOSC20-32) are adopted to provide for the safety of those persons accessing the courthouses and court facilities.
ELEVENTH JUDICIAL CIRCUIT
10/1/2020 County Civil Administrative Memo Re Jury Trial Procedures Phase 2
COVID-19 Advisory #36: Miami-Dade Courts will Transition to Phase 2 COVID-19 Emergency Operations on Wed., Sept. 23rd
- VIRTUAL COURT
- To the extent possible, all court proceedings will continue to take place in “Virtual Courtrooms,” where participants appear remotely via telephone or video technology.
- Those with questions about how to access a future virtual court hearing should contact the office of the presiding judge. A judicial directory may be found here.
- In-person jury trials will resume following strict safety protocols established by the CDC and other health experts with whom the Miami-Dade Courts consult regularly.
- Due to the space limitations of our courthouses and the social distancing and other safety protocols required during the COVID-19 pandemic, there will be fewer jury trials conducted than in the past. In order to ensure social distancing and keep the number of people inside our courthouses to a minimum, only the trial participants will be permitted to enter the courthouses
TWELFTH JUDICIAL CIRCUIT
(DeSoto, Manatee, and Sarasota Counties)
- Although Governor DeSantis has lifted the health precautions and restrictions imposed on businesses throughout Florida, the courts, as a separate but co-equal branch of government, follow the requirements put in place by the Florida Supreme Court and its chief justice, Charles Canady. Chief Justice Canady has issued several administrative orders outlining measures for Florida courts to follow, including a four-phase operating procedure. These phases are separate and distinct from the State of Florida phases issued by the governor.
- Since the early stages of the pandemic, the courts have continued to operate using remote technology in a continued effort to ensure that justice is not compromised. While some cases and court proceedings are more difficult to conduct than others, we are continuing to conduct court hearings and evidentiary trials by utilizing audio/video technology within our circuit.
- Currently, all three counties in the Twelfth Circuit have transitioned to Phase 2 operations in accordance with the administrative orders.
- The four phases of the pandemic, as it relates to courthouse operations, are as follows:
- Phase 1: In-person contact is inadvisable, court facilities are effectively closed to the public, and in-person proceedings are rare;
- Phase 2: Limited in-person contact is authorized for certain purposes and/or require the use of protective measures;
- Phase 3: In-person contact is more broadly authorized and protective measures are relaxed; and
- Phase 4: COVID-19 no longer presents significant risk to public health and safety.
THIRTEENTH JUDICIAL CIRCUIT
(Hillsborough County)08/31/2020 S-2020-044 -Continuity of Court Operations & Judicial Proceedings during COVID-19 Mitigation Efforts - Transitioning from Phase 1 to Phase 2
- Transitioning to Phase 2
- Criminal jury trials to begin October 19, 2020
FOURTEENTH JUDICIAL CIRCUIT
(Bay, Calhoun, Gulf, Holmes, Jackson, and Washington Counties)09/07/2020 COVID-19 Ninth Amended Operational Plan For The Fourteenth Judicial Circuit Transitioning From Phase 1 To Phase 2
- All counties to transition to Phase 2
(Palm Beach County)
FIFTEENTH JUDICIAL CIRCUIT
09/23/2020 AO 12.510 Mitigating Measures in Response to COVID-19
SIXTEENTH JUDICIAL CIRCUIT
Eighth Amended Exhibit A to Emergency Directive 20-03 dated May 12, 2020:
- Non-residents can demonstrate that they have legitimate business in the Florida Keys portion of Monroe County now by providing documentation demonstrating Court business such as a hearing notice, deposition notice, subpoena, Florida Bar card or similar credential from another state.
- All grand jury proceedings, jury selection proceedings, and criminal and civil jury trials were suspended beginning Monday March 16, 2020 and will remain suspended until May 29, 2020 or as further ordered by the Florida Supreme Court.
- Only mission critical matters to be heard.
- All other hearing postponed to be rescheduled by parties or Court.
- Where available, technological means of communication to be used.
SEVENTEENTH JUDICIAL CIRCUIT
09/25/220 AO 2020-81-Temp – Continuity of Court Operations & Judicial Proceedings During COVID-19 – Transitioning From Phase 1 to Phase 2
- Transitioning to Phase 2 effective 10/12/2020
- Civil jury selection and jury trials remain suspended until further order of the chief judge
(Brevard and Seminole)
EIGHTEENTH JUDICIAL CIRCUIT
10/2/2020 Amended Phase 2 Operational Plan
(Indian River, Martin, Okeechobee, and St. Lucie)
NINETEENTH JUDICIAL CIRCUIT
- Jury trials to resume 10/5/2020
(Charlotte, Collier, Glades, Hendry, and Lee)
TWENTIETH JUDICIAL CIRCUIT
08/24/2020 Revisions to Twentieth Judicial Circuit Operations Plan and Resumption of Trials
- Resumption of criminal trials September 2020
SUPREME COURT OF THE UNITED STATES
- The Court will hear oral arguments by telephone conference on October 5, 6, 7, 13, and 14
ELEVENTH CIRCUIT COURT OF APPEALS08/14/2020 Eleventh Circuit General Order No. 46 - Requirements to Enter Court Facilities and Temporary Suspension of Paper Filing Requirements
08/11/2020 Administrative Order 2020-53 Coronavirus Public Emergency - Sixth Order Concerning Jury Trials and Other Proceedings
SOUTHERN DISTRICT COURT OF FLORIDA
- Jury trials continued to January 4, 2021
MIDDLE DISTRICT COURT OF FLORIDA
- The United States District Court for the Middle District of Florida issued general orders supporting videoconference and teleconference civil and criminal hearings.
- The public and the media can access court proceedings remotely during the national emergency. https://www.flmd.uscourts.gov/sites/flmd/files/documents/flmd-public-notice-public-access-to-videoconference-and-teleconference-hearings.pdf
- The public intake areas in the Clerk's Offices in the Middle District of Florida are closed until further notice. Documents can be filed by CM/ECF or by dropping them off in the public drop boxes outside each Clerk’s Office.
7/13/2020 AO – IN RE: COURT OPERATIONS UNDER THE EXIGENT CIRCUMSTANCES CREATED BY COVID-19
NORTHERN DISTRICT COURT OF FLORIDA
- Effective immediately, the United States Courthouse and the Winston E. Arnow Federal Building, located in the Pensacola Division of the Court, must be temporarily closed to the public and will remain closed to the public until further notice.
September 21, 2020
Now that the threat of the storm is behind us, we can focus on extending support to our family, friends and clients. Please know the KD family is here for you when you need us. As you begin assessing the damages left behind by Sally, our attorneys and staff throughout the State of Florida are standing by to ease your work load where possible. We welcome the opportunity and look forward to being of service. Contact us at StormHelp@KubickiDraper.com for questions and/or claims handling assistance.
September 4, 2020
This amendment requires a plaintiff now indicate the estimated amount of their claim when filing their action or proceeding, rounded to the nearest dollar with options being:
____ $8,000 or less
____ $8,001 - $30,000
____ $30,001- $50,000
____ $50,001- $75,000
____ $75,001 - $100,000
____ over $100,000.00
While the Florida Supreme Court provides that the basis for this amendment is for data collection and clerical processing purposes only, “clerical processing” seems vague and might be an avenue which the courts use to determine a case’s susceptibility for arbitration or placement on fast tracks for trial.
It might be anticipated that in all circuit court claims, the plaintiffs will likely choose to label their case with a value “over $100,000” notwithstanding the purpose of this rule.
We will keep an eye on this issue, but please contact us if you have any questions or would like to discuss further at firstname.lastname@example.org.
August 20, 2020
The legal and insurance industries are not immune to the effects of the rapidly spreading Covid-19 virus.
Coronavirus-related claims are already being made and undoubtedly, will lead to more litigation. Kubicki Draper has combined resources from every area of practice to help navigate the many legal challenges the virus has unleashed.
From business interruption, to construction, retail and hospitality claims, our Covid-19 Client Response Team is leading the charge and actively monitoring filings around the country to develop strategic resolution plans for the unique challenges the virus-related claims present. Our team can assist with:
- first and third party claims
- evaluating policies including
- business interruption
- event cancellation
- ingress and egress
- professional liability
- supply chain
- crisis management
- marine and civil authority coverage
- builder’s risk
- interpretation of policy language, including whether damage to property exists, the application of virus, pollution, pandemic and bacteria exclusions
- evaluating the impact of government closures and attempts by states to legislate coverage
We are prepared to analyze your issues from every angle to ensure a comprehensive approach to this evolving area of the law.
For more information, please contact us: email@example.com.
August 20, 2020
Caryn L. Bellus, Angela Flowers and Betsy E. Gallagher - Appellate Practice
Brad McCormick - Personal Injury Litigation - Defendants and Commercial Litigation
Michael Carney – Litigation - Insurance
Jane Rankin - Real Estate Law
Laurie Adams - Personal Injury Litigation – Defendants
Recognition by Best Lawyers is based entirely on peer review. Their methodology is designed to capture, as accurately as possible, the consensus opinion of leading lawyers about the professional abilities of their colleagues within the same geographical area and legal practice area.
Best Lawyers employs a sophisticated, conscientious, rational, and transparent survey process designed to elicit meaningful and substantive evaluations of the quality of legal services. Their belief has always been that the quality of a peer review survey is directly related to the quality of the voters.
This article outlines the many issues and considerations that landlords and lenders will face in dealing with the effect of the COVID-19 Pandemic on their borrowers, tenants and properties.
Evictions & Foreclosures
There are currently no moratoria on commercial evictions in effect under either federal or Florida law.
The federal moratorium on residential mortgage foreclosures and evictions expired on Friday, July 24, 2020. The federal moratorium, while in existence, was limited in scope. It only applied to residences where the landlord is receiving a federal subsidy (such as Section 8 housing and VA programs), or properties that have a mortgage which was made, insured, guaranteed, purchased or securitized by any federal agency (HUD, VA, Department of Agriculture) or any of the various Government Sponsored Enterprises such as FNMA, FMAC, GNMA, etc.
The GOP proposed next round of coronavirus relief would extend the federal moratorium. Furthermore, various administration officials making the “Sunday Shows” rounds last week stated that the new relief bill would include extension of the federal moratorium. As we know, negotiations over the new relief bill broke down and President Trump issued four executive orders on various subjects, none of which reinstated the federal residential foreclosure and evictions moratorium. One of the executive orders directs various federal agencies to make funds available as temporary financial relief to renters and homeowners facing eviction or foreclosure caused by COVID-19. The order further directs the Department of Health and Human Services, and the Centers for Disease Control to consider whether measures to halt residential evictions for failure to pay rent are reasonably necessary to prevent the spread of the virus from one state to another. To say that there is a lack of clarity and guidance from the federal government on this issue would be a big understatement.
Meanwhile, the moratorium on residential evictions in Florida continues, “solely as it relates to non-payment of any rent by residential tenants due to the COVID-19 emergency.” Fla. Exec. Order No. 20-94 (Apr. 2, 2020). The moratorium has been extended various times, most recently on July 29, 2020 and is now in effect until September 1, 2020.
The latest Executive Order on this issue, Fla. Exec. Order No. 20-180 (Jul. 29, 2020), defines what “affected by the COVID-19 emergency” means. It is “loss of employment, diminished wages or business income, or other monetary loss realized during the Florida State of Emergency directly impacting the ability of a single family mortgagor or a residential tenant to make mortgage payments or rent payments.”
While there is no moratorium on commercial evictions, until June 30, 2020, Sheriffs in the entire state were not allowed to serve Writs of Possession pursuant to an Administrative Order of the Florida Supreme Court. However, on July 2, 2020, the Supreme Court ended this prohibition by administrative order. This leaves the issue to be controlled by the Governor’s Executive Order No. 20-94, as amended and extended. Certain circuits have supplemented the Supreme Court’s order with administrative orders of their own. For example, in the Fifth Judicial Circuit of Florida, the Chief Judge issued Administrative Order No. A-2020-15-D, which prohibits the Sheriffs from posting and executing Writs of Possession in evictions which come within the limited scope of the Governor’s Executive Order No. 20-94, as amended and extended.
Due to the constantly changing landscape, landlords should seek advice as to whether or not their properties are located in jurisdictions that permit some Writs of Possession to be issued and enforced.
Best course of action – Residential Tenancies
Due to the fact that landlords cannot obtain writs in those cases within the scope of the Governor’s Executive Orders, a landlord’s best, and perhaps only alternative, is to find creative solutions with their tenants. Since no one knows when and for how long the moratoria may be extended, innovative solutions for landlords and tenants are in order such as:
- Reduce rent or defer rent to be paid over time during the remaining term of the lease;
- Disburse any prepaid rents (for example, last month’s rent) and security deposits to satisfy the outstanding and future rents;
- If the property is financed, landlords should request a loan modification from the lender to defer principal payments for a specific period or increase the principal amortization term, both of which will result in a reduced monthly mortgage payment; or
- If the lease is guaranteed, landlords should demand rent payment from any additional obligors under the lease.
Best course of action – Commercial Tenancies
Although commercial landlords have the option of enforcing their leases due to the lack of moratoria, working things out with the tenants may still be the best alternative.
As with residential tenancies, offer the tenants abatement, forgiveness and reduction. Try to keep the tenant in the properties. Commercial landlords should take the following into account:
- Assuming that the landlord can obtain legal possession of the premises, will there be replacement tenants? This evaluation is fact driven and location specific, but the landlord should know the type of industries that would be most attracted to the property and how much they may be affected (both short and long term) by the COVID-19 Pandemic.
- Keep in mind the effect on other tenants of a rapidly emptying shopping center or office building. Obviously, the departure of anchor tenants has a huge impact on the culture of the property, its visual desirability and viable market rent. Moreover, the departure of non-anchor tenants may have a profound economic effect on other tenants due to customer and business type synergy as well as cross-marketing agreements.
- Landlords can administratively appeal their real estate tax assessment based on the actual reduction in the value of the real estate caused by reduced rents, increased vacancy rate, etc.
- Commercial leases are regularly provided to entities which have few assets other than the cash flow from the business operation. This makes the credit based portion of tenant approval highly important. Often the guarantees of the principals, affiliates or parent companies of the tenant are required to fill that gap. Demand for rent payment should be promptly made to each guarantor who may have motivation to pay to avoid eviction and suit for damages against the tenant and guarantors.
- A business interruption insurance claim may be made by the tenant to its insurer notwithstanding that most policies require physical damage to support the claim and may exclude viral outbreaks.
- The lease may contain “co-tenancy” provisions which permit a tenant to terminate its lease unilaterally if a certain percentage of the tenant spaces in a shopping center become vacant or if the anchor tenant closes its business.
- The lease may contain a provision permitting the tenant to “go dark” so long as the rent is paid when due. If this cost saving option is exercised by the tenant, the visual element of the premises’ viability will be impaired so landlords should consider concessions to keep the lights on at the premises.
- Most commercial leases contain a force majeure clause which should be carefully reviewed by counsel for application to COVID-19 related effects on landlord and tenant performance obligations. Be aware that most force majeure clauses do not excuse the tenant from their financial obligations of paying rent, maintaining insurance, etc. or permit either party to be excused from payment and performance based on economic conditions.
Commercial leases have unique lender issues which are triggered upon tenants failing to perform under their leases, closing business operation or vacating the property such as:
- If the landlord faces an upcoming mortgage loan maturity or other need to refinance, vacant units will reduce the appraised value of the property resulting in potential failure of the landlord’s real estate collateral to support the necessary loan amount.
- Commercial mortgages generally contain covenants which prohibit the landlord/borrower from materially modifying any lease without the written consent of the lender.
- Commercial loan agreements customarily contain a “debt service coverage ratio” covenant which requires the income generated from the property be greater (for example 1.2:1.0) than the debt service to the lender – with the effect that any abatement, deferral or reduction in rents can place the landlord/borrower in default under this covenant.
This check-list of actions to consider is not comprehensive. It is intensely fact driven by the type of property, target tenants, and, as is always the case in real estate: location, location, location.
We are available to discuss and assist you with these issues.
July 8, 2020
Click image above or link below to view statement on diversity and inclusion from Kubicki Draper and members of the Florida Association of Managing Partners (FAMP).
June 12, 2020
June 5, 2020
June 2, 2020
May 1, 2020
As many of us have experienced, devastating storms can quickly make land fall leaving residents little time to prepare. With all signs pointing to a more active season than usual and Coronavirus still affecting the way we live, the key will be to prepare early. Below is a list of tips and links we hope you will find helpful in your planning and preparations.
- Build an emergency kit
- Know your zone so you know when to evacuate, if necessary
- Plan your evacuation route
- Take inventory of your personal property and review your insurance policies
- Take steps to protect your home and business
- Hurricane Safety Tips and Resources from the National Weather Service
If you are an insurance adjuster, remember to check your license transcript and ensure you have met all of your CE requirements, so your license is in good standing and is active. If you need credits, we have several webinars coming up. We are also happy to schedule a private complimentary webinar for you and your team. Please do not hesitate to contact us at firstname.lastname@example.org.