While the missiles have paused from North Korea and the bombings have slowed in Afghanistan, the world is still a dangerous place. As a result, at any time our military of approximately 2 million men and women may be called into action. If it is, the impact could be felt right here at home by our commercial landlords especially those whose tenants are composed of businesses owned or operated by a sole proprietor or one or two employees. When the owners of such businesses or their employees are called into service, many times there is no one left behind to operate the businesses, resulting in the tenant closing temporarily or even permanently. When that occurs, can these individuals be held accountable for the unpaid rent during the time that their businesses close or, if permanently, for the duration of the lease term? During periods of economic expansion, landlords may have less concern about filling the space and making up the lost rent. But in times of economic hardship, the empty space may create a personal hardship for the landlord in meeting the financial obligations related to the property.
Residential tenants who are called to service can rely on Florida Statutes Section 83.682, which gives a service member the right to terminate his rental agreement with written notice at least 30 days after the landlord’s receipt of such notice provided certain criteria enumerated in the statute are met. However, this statute only applies to residential tenancies and does not protect the service member who is bound by a commercial lease. Accordingly, the landlord would still be able to hold those who serve accountable under their commercial leases.
One law commercial landlords may need to address is the Servicemembers Civil Relief Act (SCRA), 50 U.S.C.A. Section 3901 et.al. The SCRA was enacted to protect those who are called to serve and as a result have been forced to drop their own affairs, whether personal or business-related. Florida courts have applied the SCRA even where there was not strict compliance with the statute such as failing to furnish proof from a commanding officer stating that military duty prevented an appearance in a legal proceeding. Under the SCRA, if a tenant is called to active duty and he cannot be present to defend himself or through counsel and the requirements of the act are met, legal proceedings against that individual are automatically stayed for a period of not less than 90 days. Moreover, under 50 U.S.C.A. Section 3933, if a stay is imposed, a penalty cannot accrue against the tenant for failure to comply with the terms of the lease during the period of the stay. This could impact a landlord’s ability to assess default interest on unpaid balances or late fees. Furthermore, a court has discretion under such section of the statute to reduce or waive fines or penalties imposed unrelated to any action.
Section 3955 of the SCRA is titled “Termination of Residential or Motor Vehicle Leases.” While Section 3955 at first blush appears to mimic Florida Statutes Section 83.682 insofar as it allows a service member to terminate a residential lease, upon closer examination, it appears to be much more expansive and allow a member of the service to rescind a business lease as well. Specifically, “covered leases” under Section (b)(1) are defined as “a lease of premises occupied, or intended to be occupied, by a service member or a service member’s dependents for a residential, professional, business, agricultural or similar purpose …” While there are few reported court decisions addressing the application and interpretation of this portion of the statute, certainly a compelling, if not indisputable, argument can be made for its application. At a minimum, it may put a service member in a position to be able to negotiate with a commercial landlord who may be left with a nonperforming tenancy and no way to remove such a tenant from the property until the service member returns from active duty. Of course, if the lease is in the name of a legal entity and not the name of the service member, it is doubtful that this statute can be applied against the landlord who would then have full recourse under the terms of its lease unless a waiver has been furnished by the tenant in accordance with Section 3918 of the SCRA.
Another minefield for commercial landlords dealing with those called to service are claims that the lease has been commercially frustrated or is impossible to perform. Under these legal theories, a service member called to serve could potentially claim that the lease should be rescinded because it would be impossible for him to perform under it while away serving the country. While certainly such defenses to any action by the landlord for nonperformance might not be applicable if it was reasonably foreseeable that the tenant might be called to service, a landlord will have to hope that no such finding of foreseeability can be made. Again, a landlord will have a strong argument to claim that such defenses to enforcement of a commercial lease against a service member do not apply if the lease is not in the service member’s name.
Lastly, an examination of a commercial landlord’s rights where a tenant is called to active duty would not be complete without considering the legal doctrine of impossibility of performance or force majeure provisions under a lease. Clearly when one is called to service, he cannot perform his legal obligations under a lease.
In order to maintain the defense of impossibility of performance, the tenant who is called to duty must not have known that he would be called or that it was not foreseeable that such an event would occur at the time the lease was executed. However, if one is in active duty, it most likely is foreseeable that he will be serving. What is not so clear is whether someone in the reserves could not take such a position. Certainly an argument could be made that it was not foreseeable under the circumstances at the time the lease was executed.
The scope of force majeure clauses tend to be broader in scope as they typically cover foreseeable and unforeseeable events. Whether or not someone called to serve can rely on such provisions will depend on the language contained in them. If the force majeure provision only extends to the landlord, there will be an issue of applicability to the tenant. More importantly, will be what events are covered by the provision. It is conceivable that service-related events may not even be enumerated. If the only event relevant to a service member is an act of war, it is questionable whether the provision could be applied where the tenant is called to active duty, but not necessarily war.
Based on the foregoing, it is clear that both parties to a lease, where the tenant is an active member of the armed forces or in the reserves, must be cognizant of how a call to service can impact their respective rights and obligations under a lease.
Andrew Dector, a shareholder with Shapiro, Blasi, Wasserman & Hermann in Boca Raton, has represented clients in commercial and real estate litigation, including commercial landlords, in both state and federal courts and in arbitration and mediation for more than three decades. He may be reached at 561-477-7800 or ADector@sbwh.law.