By | Shafeek Seddiq
Small businesses across the nation, and in Virginia, have been hit hard by the virus through mandatory closures to slow the spread of the virus.
Some small businesses, in particular restaurants, have seen the impact already and may not survive for long if some relief is not given soon.
Rent is probably one of the largest expense of your business operations next to labor. So, continued payment of thousands of dollars for rent every month alone without generating income is not sustainable for small businesses.
Commercial leases in Virginia in general are very one-sided and if the small business owner has not had a chance to negotiate the terms, the lease may contain an acceleration clause. This means the landlord can ask for all the rent under the contract if you default which could amount to thousands of dollars. Additionally, landlords, in general, also ask for personal guarantee, and if you have given one when you signed the lease agreement for your restaurant or store that makes you personally liable for making the rent payment.
Here’s some options to protect your business from losing more money or collapsing as we get through this virus together safely.
- Contract Law: commercial leases are governed by contract law. Depends on what the lease agreement says, you may be able entitled to relief under the following contract law theories. In each of the following the argument raised may include pandemic, government ordered shut down, and shopping malls owner closures.
- Force Majeure: it literally means “greater or superior force”. In law, it means that parties to a contract, in this case lease agreement, agree to excuse their performance of the contract if certain events or types of events occur that are beyond their control.
- Impossibility and Frustration: another legal theory recognized under Virginia contract law is that it is impossible to perform the contract. It means that something which the parties did not anticipate happening, did happen that now made it impossible to continue performance of the contract. Frustration on the other hand occurs when a party’s actual purpose is substantially frustrated without his or her fault.
Raising the above contract law theories may or may not result in some relief as the landlords also have the right to protect their interests. Given the severity of the economic impact of this virus on everyone, it is likely that landlords will be amenable to negotiation with tenants. But, in some situations, landlords’ ability to negotiate rent will also depend on landlords’ financial covenants given to the lender. Therefore, it is important to first review your commercial lease agreement and understand your options, if any.
- Business Insurances: another option is to consider your business interruption insurance (also called business income insurance). When your business is impacted by a disaster, it interrupts your business. This insurance policy covers that loss of income due to a disaster. You may be able to apply to your insurance company to get recover some of the income you lost or will lose due to government forced closure to prevent spread of corona-virus.
- Internal Revenue Services (IRS): the IRS has announced extended the tax day to July 15, 2020 (IR-2020-58, March 21, 2020), and also provides tax credits for the cost of leave related to the virus. (IR-2020-57, March 20, 2020). Please consult your accountant or tax expert to guide you on taxes.
- Small Business Administration (SBA): the SBA has established the “Economic Injury Disaster Loan Program” providing small business impacted by the coronavirus up to $2 million in working capital loans with low interest rate. You can apply to this loan to keep your business going through this disaster. To learn more about this loan click here.
Undoubtedly, coronavirus is a pandemic as we have already paid a heavy price in lives and finances. Let’s work together to prevent the spread and further loss of lives and finances by following the Center for Disease Control and Prevention (CDC) guidelines, and considering our options.
Please reach out and consult with your lawyer who can explain your options and guide you in these trying times.
If you have questions about this article or any other topics related to your small business, please feel free to contact me at: shafeek@seddiqlawfirm.com or 703-558-9311 or through Facebook at https://www.facebook.com/SeddiqLaw/?modal=admin_todo_tour