APRIL 2020
ARTICLES
Is COVID-19 a Defense against Breach of Contract?
Many businesses are being severely impacted by the COVID-19 crisis, and as a result may be unable to perform obligations under their signed contracts. If the COVID-19 pandemic is preventing a company from performing its obligations under a contract, can the company avoid liability for breach? The answer may depend on whether the contract contains a force majeure clause. A force majeure clause protects a party against liability for failure to perform the contract, if the failure to perform is caused by circumstances outside the party’s control – so called “acts of God” – and the COVID-19 pandemic certainly fits this definition.
If the contract contains a force majeure clause, then it can be invoked if the COVID-19 crisis is preventing a party from performing the contract. For example, if the party is required to perform services under the contract and its employees are sick with the virus, then the party may invoke force majeure and notify the other party that its performance is suspended. However, if the party is only required to pay money under the contract, or if the contract does not contain a force majeure clause, then the party will need to consider alternative legal theories in order to excuse performance.

Under California law, a party may also be excused from performing a contract if performance becomes impracticable. For example, if a party is required to pay money for goods and the COVID-19 pandemic has caused the market price of the goods to drop precipitously, or if a party is required to provide services and the COVID-19 pandemic has caused the cost of providing services to rise precipitously, then in each case the party could incur severe losses by performing the contract. In situations such as these, where performance is possible but has become economically unfeasible, then the party may be excused from preforming the contract on the grounds of impracticability.

Related legal theories include impossibility and frustration of purpose. If the pandemic makes it impossible for a party to perform it obligations under contract, then the party should be excused from liability for breach on the grounds of impossibility. In some cases, the pandemic may cause a change in conditions, so that the very reason for entering into the contract in the first place has disappeared. For example, if a party has entered into a contract to lease space for a public event, and the government has banned all public events, then the very purpose of the contract has been frustrated and the party should be excused from performing on the grounds of frustration of purpose.

In adapting to the new economic environment caused by the COVID-19 pandemic, each company should review its signed contracts with its attorney, and where appropriate consider whether non-performance based on one or more of these legal theories is an option.

COVID-19 & The Economy
With everything that is happening with COVID-19, many are concerned about the economy, and there are a few things to consider. Here's a quick refresher: a correction is defined as a decline of 10% or greater from a recent high in the financial markets. Corrections can last anywhere from days to months, but few have lasted longer. Recently, we've seen a bumpy ride, and I wanted to reach out to give you some context on what this might mean for you.
Stock prices have bounced in-and-out of correction territory, as investors attempt to measure the economic impact of the COVID19 virus. During periods of volatility, it's important to remember that stock market corrections are not unusual and represent a normal part of the investing cycle.
Coordinated Response
There's little doubt the coronavirus presents a challenge to the global economy. Already, we are seeing a coordinated response from healthcare organizations and federal agencies. On March 2, 2020, the Federal Reserve cut short-term interest rates by half a point, and the International Monetary Fund and G7 officials pledged to support economies impacted by the outbreak.1
 
A Reality Check
While significant market downturns can undoubtedly be unsettling, it helps to view corrections from a broader perspective. This is the 7th correction the stock market has seen within the last ten years. You may remember late 2018 when the market benchmarks fell nearly 20% when the Federal Reserve continued to raise shorter-term interest rates as the U.S. economy strengthened.2 In fact, if we widen our gaze further, we can see that this is the 27th market correction since World War II.3 Past performance can't predict future market results, but markets have still managed through the process of price corrections.
 
Corrections remind us of a reality we don't like to think about: stock prices can't always go up. When prices drop, it can be tempting to give in to our emotions and react, but patience and caution may be warranted.  
 
Strategically Strong
Your investment strategy has been created to reflect your time horizon, risk tolerance, and goals. As an investor, getting through a correction means having the poise to ride out short-term volatility. I'll be paying close attention to market developments in the coming days and weeks. In the meantime, feel free to call me or email me if you have any questions or concerns.
 
1. CNBC.com, March 3, 2020
2. Acorns.com, February 27, 2020
3. CNBC.com, February 27, 2020

LOS ANGELES RESIDENTIAL REAL ESTATE- A View From The Front Lines

Federal Government reclassifies Residential Real Estate as “Essential Services.”
LOS ANGELES - March 30, 2020. It was reported Saturday that the US Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency released an advisory list on which industries are “essential to critical infrastructure,” which classified essential real estate critical to public health and safety as well as “economic and national security.”

By taking this action, the Federal government set guidelines which would allow states and local jurisdictions to put health and safety protocols into place and allow the businesses of residential and commercial sales and leases, as well as and government agencies and private businesses that support the real estate industry, back to work. Not all states and local cities, counties are following the new Federal guidelines: However, major California cities like Los Angeles are moving forward with real estate business residential and commercial to proceed to open with public health and safety practices a top priority.

In states like California, the 5 th largest economy in the world, and in Los Angeles, estimated to be the 25 th largest economy in the world, the assets and economic support industries are vital to infrastructure and economies both local, national and global. Coupled with the enormous shifts and disruptions to businesses and public policy, mortgage interest rates and steady home prices, these factors can and are creating opportunities for affordability in the residential rental market and home ownership.

The Real Estate Industry and its brokers and sales associate are the designated “custodians” of this key social, investment and economic asset. Their commitments to serve the communities and the Residential Real Estate Homeowners and Buyer needs, most especially at many of the larger established Los Angeles and Worldwide offices as Sotheby’s International Realty, Coldwell Banker and Berkshire Hathaway Home Services will continue to serve those client Owners, Sellers and Buyers and Sellers with the vital health protocols and information, as well as market knowledge to preserve the integrity, value and safety of the state’s population and home assets.

For more information on Los Angeles public health and safety guidelines pertaining to COVID-19; visit these sites:

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