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Resolving Business Disputes Caused by COVID-19

Businesses will find themselves in an uncertain and challenging environment after the worst of the coronavirus pandemic is over. It is almost certain that the world will change in an unforeseen manner. In fact, the COVID-19 pandemic is being compared to the Great Depression with regards to its potential impact on the economy. There are rising fears that the economies of many nations around the world will go into free fall.

In the wake of the ongoing economic crisis and global recession, it is not unexpected that commercial legal disputes will arise. These conflicts will inevitably involve the interpretation and application of various contractual clauses, including the much-discussed force majeure clauses.

These clauses are contractual provisions inserted to safeguard parties from unprecedented and unavoidable acts, such as “acts of God,” accidents, acts of terrorism or war, strikes, and circumstances beyond the parties’ control.

Upholding Contractual Obligations during the Coronavirus Pandemic

In the current situation, contracting parties have repeatedly inquired whether they would need to uphold contractual obligations or take respite by invoking force majeure. Every contract would need a review to understand whether pandemics would strictly be covered. But with the present climate of unpredictability, it is perhaps in the best interest of all parties to not terminate existing contracts by invoking force majeure.

Companies may be in a better position to evaluate and renegotiate contracts or enter into new agreements to supersede previous contracts. The objective should be to balance equities and maintain a contractual continuity relationship to be able to resume performance obligations and accomplish the underlying goals of the contract after the restrictions are removed, and it is practically possible to achieve these objectives.

In the CARES Act, there are various measures to ensure workers are paid, employed, and allow enhancements to the healthcare system. Also, it offers financial assistance to severely impacted sectors of the economy via employee compensation limitations, suspension of aviation excise taxes, and offering a temporary relief from difficult loan restructuring, along with providing a moratorium on the foreclosure of federally backed mortgage loans.

Therefore, it is advisable for businesses to not terminate existing contracts in the current scenario. Such contracts are an essential element in the survival of any enterprise. Many contracts may already have been significantly performed by one or both parties.

It is challenging to predict the conclusiveness of the COVID-19 pandemic. In these circumstances, parties should ideally evaluate the mutual benefit of upholding existing contracts, in addition to the modalities related to the performance of contractual obligations, while developing practical and creative alternatives. 

For instance, it may not be in the interest of either party to terminate a commercial lease where most of the term remains. In the case of retail outlets shut during the lockdown, but are required to pay rent for this duration, one alternative would be to enter into a revenue-sharing agreement, which can enable both parties to gain as the economy slowly revives. Such solutions can be developed for other types of contracts as well.

Mechanisms for Alternative Dispute Resolution

It may be more beneficial for parties to turn to other alternatives and more straightforward mechanisms to resolve stalled negotiations, such as conciliation and mediation, which do not have associated court procedures and are more cohesive in nature.

Conciliation and mediation have been practical tools in resolving conflict in various areas of law, such as family and marital issues, without parties having to undergo time-consuming litigation. The courts will undoubtedly be overburdened because of the coronavirus pandemic, and litigation will prove to be more expensive and tedious.

The stringent rules of procedure and evidence are not binding in the process of mediation. Instead, it operates on the tenets of justice and fairness, with due regard to the rights and responsibilities of the parties, usages of trade, and the situation surrounding the dispute.

In mediation, the parties are responsible for making decisions. The mediator guides the process, but they cannot impose any decision or settlement on the parties. Legal professionals can represent the parties. However, the proceedings remain private and are not presented in court if the parties cannot arrive at a mutually agreeable decision.

Therefore, parties should interact in an active and cooperative manner to ensure that existing contracts, which are presently in a state of suspension, are appropriately altered to proportionally or equally absorb the losses that have occurred due to the coronavirus pandemic.

To streamline the process of resuming the performance of contracts, it is crucial to balance future risks between the parties and avoid extended dispute resolution, which can only have an adverse impact on the ability of the parties to bounce back after restrictions are lifted.

Are you Involved in a COVID-19 Related Business Dispute? Speak to a Seasoned Corporate Contract Lawyer

The COVID-19 pandemic has meant unprecedented disruption for countless businesses. At this time, it is important to review and renegotiate existing contracts for the smooth operation of the business after the lockdown. The experienced corporate attorneys at Evans Law can help evaluate your existing contracts and offer reliable legal counsel in mediation and conciliation proceedings. Call (410) 626-6009 today for a comprehensive consultation with a qualified lawyer.

How Will the Coronavirus Pandemic Impact the Maryland Housing Market?

In the two major metro markets in Maryland, the real estate sector started strong. Unfortunately, the COVID-19 pandemic led to unprecedented lockdown orders. MarketStats data indicates that in Washington and Baltimore metro regions, the highest median March sales prices peaked at the highest amounts in the past ten years.

However, by the end of the month, there was a significant decline in new listings. According to Chris Finnegan, Bright MLS’s chief marketing and communications officer, the metro area reached a March 10-year high for the median home sale price. The figures on March housing are the first data to indicate for the COVID-19 pandemic has impacted the sales of local residential real estate.

In March, the median residential real estate price in the eight counties and city that constitute Maryland’s primary metro jurisdiction almost touched $330,000. The median year-over-year price rose by 8.4 percent. Simultaneously, the number of closed sales in those jurisdictions witnessed a median increase exceeding 16 percent.

However, the pending sales decreased starting February in each of the jurisdictions in a period when sales should have been set to increase as we headed into the normally strong spring selling market. The year-over-year number of pending sales dropped by a median of 3.25 percent throughout the metro jurisdictions.

The number of new listings also decreased in March in comparison to the previous month. The Montgomery and Anne Arundel counties saw a slight rise in the number of new listings compared to last year, but the median number of new listings reduced by 2.5 percent in that category.

Recent times have witnessed a large number of Maryland residents making first-time unemployment claims.

Concerns about whether potential homebuyers will choose to opt out of purchasing new homes are growing. There is speculation on whether there will be another economic downturn, similar to the Great Recession in 2008, due to the possibility of a rise in foreclosures. As of now, the federal and state governments have ordered moratoriums on foreclosures.

According to local authorities, projections already indicate a substantial shortfall in revenues due to income tax loss. Local governments are keeping a close eye on the housing market as their largest source of income is from property taxes.

In case the economic damage due to the COVID-19 pandemic hits the residential real estate market, local authorities will face an even more challenging situation in paying their bills. Certain jurisdictions, such as Baltimore, are in the process of contemplating layoffs and furloughs for firefighters and law enforcement personnel.

Ted Zaleski, the Director of Management and Budget in Carroll County, states that in the short term, the loss of revenue due to the coronavirus pandemic is not alarming. However, at some stage, they will have to assess the effect of this situation on future earnings, which can have a significant impact.

Disruption of Homebuilder Supply Lines due to COVID-19

The coronavirus pandemic has had an adverse effect on the home builder supply chain. The National Association of Home Builders states that almost one-third of home building supplies are sourced from China, besides finished goods such as sinks, appliances, and bathtubs. There has been a significant disruption in these supply chains.

At a time when home construction finally gained momentum, such delays could have a negative impact. Home construction has been struggling to keep up with demand since the financial crisis due to the scarcity of available land, cost of construction, and shortage of construction labor.

But the NAHB indicates that homebuilder confidence has risen significantly in recent months. This means that among builders, there is more inclination to commence construction on residential real estate.

The Oncoming Spring Homebuying Season

The conditions were favorable for the spring homebuying season to be incredibly competitive due to low inventory, high demand, and low mortgage rates. It is a good idea for existing homeowners to consider refinancing to take advantage of such low rates.

However, there has been a drastic change due to the COVID-19 situation. The mortgage industry could be sent reeling due to any prolonged suspension in mortgage payments and cause a liquidity crunch. In this event, lenders will not have sufficient capital to give loans to potential homebuyers.

However, if the lending infrastructure of the mortgage industry sustains limited damage, a rapid recovery might be possible. This would bring the residential real estate market back to where it was before the coronavirus pandemic.

The mortgage industry could make a quick recovery, but the economy at large may not. That would impact demand, and there will be potentially fewer buyers in the market. This would be welcome news for potential buyers who will now face less competition while trying to purchase their dream residence.

Consult an Experienced Real Estate Attorney

Today, the country faces an unforeseen health crisis due to COVID-19. The health and well-being of the people remain the utmost priority. The offices of Evans Law remain open, and we are taking every measure possible to ensure the safety of our clients and team. Together we will get through this unprecedented situation!

Every client is like family at Matthew S. Evans, III law firm. We believe in developing close interpersonal relationships and providing meaningful, cost-effective legal counsel.

Our knowledgeable legal team works with clients on a wide array of litigation areas, ranging from real estate transactions to general civil litigation. To schedule a case review for your specific situation, call us today at (410) 626-6009.

Are Landlords Obligated to Waive My Rent in Maryland Because of COVID-19?

The ongoing Covid-19 crisis has created challenges for both landlords and renters pertaining to managing their finances. If you are a landlord, you may be wondering whether you have a legal obligation to waive your tenant’s rent if they express their inability to pay this month or the next citing coronavirus related economic disruption.

To make sure that you are on the right side of the law, you should consult with a knowledgeable Maryland real estate attorney about your specific legal position as a landlord. However, in general, while you are not obligated to waive rent because of the coronavirus pandemic, you will have to follow the new rules on eviction imposed by the state to protect the interests of your tenants.     

Find a Balanced Solution

If your tenant does not have a history of delaying rent or violating other terms of the agreement, you should recognize as a landlord that they could be facing a real financial difficulty. Many renters have lost their jobs or their businesses have come to a standstill in the prevailing Covid-19 crisis. In this situation, they need your understanding and cooperation.  

It is also understandable that the same economic challenges are present for you as a landlord as well, and you will probably struggle to pay your own bills if your rent collections do not come in. Depending on your situation, you should seek legal advice from a reputable real estate lawyer on what could be the best course of action for you in a situation when you cannot evict tenants for the non-payment of rent.

Your lawyer will consider your circumstances carefully and discuss your best legal options with you. However, they may also point out to you what alternatives you have if you believe that evicting a tenant is the right course of action. In the current market, you may not quickly get a new, well-paying tenant and the gap period until you find a new tenant may more than offset any gains you achieve in this manner.

Deal with Compassion

In the current circumstances, an experienced real estate attorney in Maryland will advise you to treat your tenants well. It may be in your best interests if your existing tenants continue to stay for the long-term. Loyal relationships are formed in a crisis, and this is the time when your tenants need your compassion and support.

Avoiding communication with your tenants in this situation is not a solution. On the contrary, it will only work against you. Reach out proactively to your tenants and keep the lines of communication open as long as the ongoing coronavirus crisis lasts. If your property is managed by professional managers, make sure you speak with the manager regularly and send the right message through them to your tenants.      

Update: Current Eviction Policy in Maryland

On 3rd April, Maryland issued a new order that temporarily prohibits landlords of both residential and commercial properties from evicting their tenants who have suffered a significant income loss following the Covid-19 crisis. The order also includes a prohibition of residential mortgage foreclosure as well as repossession of certain types of personal property.

The new temporary policy protects residential as well as commercial tenants against non-payment of rent. Courts will not be able to give a judgment or issue a warrant for the possession or repossession of any commercial, residential or industrial property during the period of state emergency.

However, the condition is that the tenant should be able to demonstrate to the court that they have experienced a “substantial income loss” resulting from coronavirus pandemic or the associated proclamations of a state of emergency.

Individuals can demonstrate substantial income loss by showing reduction in income, job loss, closure of workplace, or missing work because of childcare. For entities, substantial income loss can be shown by way of loss of business, mandatory closure of business or loss of key employees.

The order does not require that tenants should notify their landlord of their substantial income loss before the due date of rent. They only need to show it to a court of law. In any case, the state courts in Maryland are closed for all hearings at present (except emergency cases). Therefore, a legal proceeding for eviction cannot occur until the courts reopen anyway.

Landlords cannot seek eviction by citing “clear and imminent danger” in the event that a tenant or their cohabitant is diagnosed as Covid-19 positive.

No Waiver of Rent Payment Obligations

Notably, the order of the State of Maryland does not waive or excuse any payment obligation, which would presumably include rent, interest, other damages, contractual late fee, and attorney fee. The order has merely suspended judgments on eviction for the duration of the emergency.

The order does not prohibit the landlords from actions such as applying the security deposit to the unpaid rent, or drawing down on a letter of credit, or exercising any other available remedies except eviction. Landlords should speak to a competent real estate attorney in Maryland for their best legal options.

Schedule a Consultation with an Experienced Real Estate Lawyer

The Evans Law represents clients throughout Maryland and Washington D.C. in legal cases involving real estate, construction and land use matters, apart from settlement and brokerage services. Call us today at 410-626-6009 to schedule a consultation with one of our lawyers.