While attorneys have been fielding phone calls for the past week from tenants and landlords about whether the government-imposed shutdown aimed at mitigating the coronavirus spread constitutes a “force majeure” or act of God, one tenant in New Orleans is already taking the matter to court.
The petition, filed earlier this week in Orleans Parish Civil District Court, is the first of what will likely be many such filings seeking clarity on the issue. It offers a glimpse of the arguments that are expected to play out in courthouses around the city, state and country.
The plaintiff in the petition is the Shops and Garage at Canal Place LLC, which is asking the court for a declaratory judgment on whether the new coronavirus is an act of God.
The defendant is Wilson Canal Place II LLC, which owns the high-end, mixed-use development on Canal Street in downtown New Orleans.
According to court documents, SG sent a letter to Wilson on March 17, invoking a force majeure clause in its 10-year lease that provides for an abatement of minimum daily rent in certain circumstances, including “an unforeseen act of God or unforeseen cause beyond the reasonable control of the tenant.”
SG pays some $7 million a year, or more than $580,000 a month, under the terms of the lease, according to court documents.
The petition goes on to argue that the new coronavirus and government-imposed mitigation measures that have forced the closure of the retail outlets, restaurants, movie theater and adjacent Westin Canal Place Hotel that comprise the bulk of SG’s business are beyond SG’s control.
“Fear and concern caused by COVID-19 to the customer base of the parking garage through warning, limitation and instructions from government officials, medical professionals and the press has interrupted and substantially impaired the operation of the parking garage as a commercial parking facility,” the petition reads. “These circumstances constitute an unforeseen act of God or unforeseen cause beyond the reasonable control of SG.”
The petition notes that Wilson replied to SG’s letter “disputing SG’s invocation of the (act of God) clause in a generalized manner.”
Attorneys for Wilson could not be reached for comment. An attorney for SG did not return a call seeking comment in time for publication.
Local real estate attorney Randy Roussel, a partner with Phelps Dunbar, who has no connection to the suit, says the force majeure clause in the lease appears to be favorable to SG, unlike some clauses which are much more ambiguous or favorable to the landlord.
He also suggests SG is being proactive in trying to protect itself, even though the courts are closed until at least mid-April and no declaratory judgment will likely be issued before then.
“If (Wilson) would try to put them in default, this way SG could say they had already filed suit,” he says.
Roussel says attorneys are advising both tenant and landlord clients to be proactive in communicating with each other. None of the commercial property owners he represents is talking about foreclosure or eviction. Rather, they’re sending forbearance letters to their tenants, agreeing to hold off on taking any action for 30 days.
“What good does it do to put someone in default?” he says. “If things come back, do you want to be stuck without any tenants? It’s more about ensuring everyone’s rights are protected in the interim.”