On March 22, 2020, the Governor of Louisiana entered a “Stay-at-Home” Order for all of Louisiana, including the City of New Orleans. Additionally, the Mayor of New Orleans followed suit. As a result, Louisiana and the City of New Orleans are now beginning to see lawsuits filed related to COVID-19 and the interruption to business. Undoubtedly, the number of lawsuits will continue to increase almost simultaneously as the days under the Order continue to increase.
For example, on March 22, 2020, the Shops and Garage at Canal Place, L.L.C. (“SG”) filed suit in the Civil District Court for the Parish of Orleans against Wilson Canal Place II, LLC (“Wilson”) for a declaratory judgment regarding their current lease agreement. On February 24, 2016, SG and Wilson entered into a lease agreement (the “Lease”) leasing the parking garage at the Shops at Canal Place to SG (“Lawsuit”). According to the Lease, SG is allowed to operate the parking garage for the operation of a commercial parking garage. Most of the customers of the parking garage are patrons and guests of the Shops at Canal Place and/or the Westin Hotel.
Under the Governor’s “Stay at Home” Order, any public and/or social gathering of 10 or more people is strictly prohibited. In fact, the New Orleans Police Department is policing all streets and public areas to ensure strict compliance with the government Orders. Consequently, the Shops at Canal Place and the Westin Hotel are closed. There is no dispute that the Shops at Canal Place are closed due to the mandatory Stay at Home Orders.
In the Lawsuit, SG argues that since there are no customers coming to the Parking Garage given the Order, the Parking Garage’s business is interrupted, and SG seeks a reduction in the Minimum Rent of the Parking Garage while under these Orders. To seek such a reduction, SG cites to its Lease with Wilson. Accordingly, Section 13.5 of the Lease provides for an abatement of Minimum Rent in certain circumstances, including when an “unforeseen act of God or unforeseen cause beyond the reasonable control” of SG interrupts or substantially impairs the use for the operation of a commercial parking facility. In fact, Section 13.2 of the Lease provides for calculation of the Minimum Rent payments under these circumstances.
On March 17, 2020, SG sent a letter to Wilson requesting an abatement of Minimum Rent given the circumstances surrounding the business interruptions experienced due to COVID-19. On March 18, 2020, Wilson responded disputing SG’s request for abatement of Minimum Rent under Section 13.5 and 13.2 of the Lease. Wilson disagrees that the provisions of Section 13.5 are invoked because they contend that the operation of a commercial parking facility has not been interrupted or substantially impaired. Rather, Wilson takes the position that SG is able to continue operating the Parking Garage as a commercial parking facility, regardless of any closure to the Shops at Canal Place. Wilson further urges that just because the traffic to the Parking Garage may be reduced due to the current circumstances does not entitle SG to a reduction in rent under the Lease. Wilson maintains that if Minimum Rent is not continued under the Lease, then Wilson will exercise all remedies provided under the terms of the Lease.
SG points out that if Wilson truly believed that there was no substantial impairment to operating the Shops at Canal Place, then it would be open for business and customers and guests would still be utilizing the Parking Garage. SG urges that the closing of the Shops at Canal Place in and of itself is a direct admission that Section 13.5 of the Lease is enacted as any “unforeseen act of God or unforeseen cause beyond the reasonable control of the Tenant, then the Minimum Rent shall be abated on a daily basis beginning the day of interruption or substantial impairment of use is removed.”
Through the Lawsuit, SG simply seeks a declaratory judgment that: (1) the circumstances presented by the COVID-19 pandemic constitute an unforeseen act of God or unforeseen cause beyond the reasonable control of SG, which has interrupted and substantially impaired the use of the Parking Garage as a commercial parking garage as contemplated by Lease Section 13.5 beginning at least the week of March 13, 2020, and (2) under Lease Section 13.5, SG is entitled to abate Minimum Rent and to pay rent calculated under Section 13.2 of the Lease beginning the day of the interruption or substantial impairment of use and continuing until the day after the cause of the interruption is removed.
Put simply, SG is not seeking termination of the Lease, although SG does reserve its rights to do so. Rather, SG is seeking relief from rent payments that would be reasonable under reasonable business circumstances but now are not reasonable in light of the business interruptions brought on by COVID-19 mandatory closures. It is unclear how quickly any decision will be made on SG’s Lawsuit in light of the closures of the Courts.
While the outcome is unknown, we anticipate there are many businesses throughout the City of New Orleans in the same situation as SG, and you should be looking at the terms of your lease agreements to determine what, if any, relief may be available to you during this national crisis. There may be timely written notice requirements that you need to trigger to take advantage of any potential relief.
If we can be of any assistance or provide any resources as it pertains to any questions, claims or lawsuits, please do not hesitate to contact us, as we stand ready and able to assist you in any way we can.