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By: Jason A. Lien and Cyri Van Hecke
COVID-19 fundamentally changed the business landscape. Since the start of the pandemic-related shutdowns in March 2020, companies in the real estate and construction industry have faced unprecedented legal challenges involving interruptions to their business, commercial and residential leases and mortgages, and emergency orders that impact legal deadlines.
As the emergency orders are lifted, the civil cases that have been backed up for the past year will begin to move their way through the courts. Post-pandemic litigation will face uncharted territory, and companies involved in such should consider the following questions:
1. Is my company’s matter impacted by extended statutory deadlines?
On April 15, 2020, Gov. Tim Walz signed into law H.F. 4556, which suspended certain deadlines during the peacetime emergency. Essentially, this means that the statute of limitations and other deadlines outlined in state law that would otherwise run between March 13, 2020, and April 15, 2021, were all extended to April 15, 2021.
This is not as simple as it may seem. For example, while the so-called tolling legislation paused statutory deadlines, it did not impact state court procedural rules. The courts clarified that where a timeline appears in both the statutes and procedural rules, substantive timelines are affected by the legislation, while procedural timelines are not.
Litigants concerned about whether a deadline was extended should first confirm whether the deadline was one affected by the tolling legislation and then determine whether the running of that deadline on April 15 affected their rights.
2. What is happening with eviction moratoriums?
Under the Coronavirus Aid, Relief and Economic Security Act of 2020 (“CARES Act”), moratoriums were placed on residential foreclosures and eviction actions involving federally backed mortgages. A moratorium on evictions and foreclosures was also imposed in Minnesota by the governor’s Emergency Executive Order that was extended through June 14, 2021. Although Walz’s order did not expressly apply to commercial property, some Minnesota district courts did briefly extend the ban to commercial evictions.
However, as 2020 came to an end, the vast majority of all Minnesota courts uniformly allowed commercial evictions to proceed, limiting the ban to residential evictions. On April 29, 2021, a bill was passed in the Democratic-controlled Minnesota House that would gradually end the residential eviction moratorium while providing distressed tenants with time to access federal rental assistance; when the legislative session ended, Walz said he and lawmakers were negotiating on the matter.
President Biden has extended the federal ban until June 30, 2021; however, the federal moratorium appears to be reaching its end after a federal judge struck it down on May 5, 2021. The judge’s order is currently under appeal. The ban will continue to face legal challenges as more lenders and landlords grow increasingly impatient without an off-ramp.
We are sure to see a glut of foreclosure and eviction filings after the federal and state moratoriums are eventually lifted, likely by the fall of 2021.
3. Are my company’s contractual rights impacted by the pandemic?
The pandemic also potentially affected the rights and obligations of parties to a contract. Post-pandemic breach of contract actions may include defenses, or claims by either party that they could not fulfill the contract, based on force majeure clauses, impossibility, and frustration of purpose. While each of these defenses has slightly different elements, the court must analyze them using the contract’s plain meaning and consider the contract as a whole.
A force majeure defense is unique in that it is found in the language of the contract itself. Most commercial contracts include force majeure clauses, which excuse performance in the event of an unforeseen circumstance. For the clause to be effective, the unforeseen circumstance must specifically be named in the contract, and the party invoking the clause must take reasonable steps to meet its obligations to perform.
The other two defenses can be brought to excuse a party’s performance even if the unforeseen event is not spelled out in the contract.
The defense of impossibility is just like it sounds: A contract cannot be enforced if an unforeseen event makes a party’s performance impossible. If the contract is for the sale of goods and governed by the Uniform Commercial Code, the standard of impossibility is replaced by the less-strict commercial impracticability.
By contrast, frustration of purpose exists when an unforeseen event occurs that makes the fulfillment of the contract pointless. All of these defenses provide potential arguments that excuse a party’s performance based upon circumstances caused by the COVID-19 pandemic.
Paying close attention to these three issues and the policy decisions that affect them will help businesses weather any post-pandemic legal disruptions.
BIOS: Jason A. Lien and Cyri Van Hecke are litigation attorneys at Maslon LLP. They represent railroads, real estate companies, design professionals, contractors, suppliers, owners, financial institutions, and other public and private entities in a variety of real estate and construction litigation matters. Both regularly appear on behalf of clients in state and federal courts, arbitrations and administrative proceedings in Minnesota and nationwide.