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An Overview of the Paycheck Protection Program

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) included the Paycheck Protection Program (PPP) to encourage small business employers to continue to retain and pay employees during the economic slowdown. The PPP has been extremely popular, with the initial funding in the amount of $349 billion being completely allocated within 2 weeks. Congress enacted a second round of funding, which became available on April 27, 2020. The second round of funding is expected to be quickly exhausted and a third round of funding is expected.

The general parameters of the PPP are as follows:

An employer with 500 or fewer employees can borrow a maximum of two and one-half months of its average payroll expenses (up to a $10 million cap);
The employer must use at least 75% of the funds for eligible payroll expenses;
The employer must not use more than 25% of the funds for other eligible expenses, including mortgage interest (but not principal), rent, utilities and interest on pre-existing debt. All of these obligations must have been in existence as of February 25, 2020; and
The funds allocated to payroll must be expended within 8 weeks of the date the funds are received.

If the funds are used within the parameters of the PPP, the entire balance of the loan can be forgiven. To the extent funds are not used within the parameters, that portion of the funds converts into a loan with terms specified in the CARES Act.

Each of the elements of a PPP loan is subject to limitations and there is some uncertainty as to how some of the provisions will be applied. Blanco Tackabery is prepared to assist you with navigating the PPP process. Contact Jim Vaughan for assistance.

Jim has more than 30 years of experience representing lenders in commercial loan workouts, bankruptcy cases and commercial litigation. This, coupled with his accounting background and business skills developed running a solo law practice for twelve years, gives him a common sense, results-driven approach to counselling clients and serving their needs effectively and efficiently.

COVID-19 Delays in the Sale of Goods – Get to Know the UCC

In my last post, I addressed the legal concepts of force majeure, impossibility and frustration of purpose in the context of real estate contracts and leases. In general, these concepts all relate to how an unforeseen catastrophe may affect a party’s duty to abide by the terms of a contract. A similar concept that applies to the sale of goods is “commercial impracticability.” As contract disputes arise from coronavirus-related delays within the supply chain, buyers and sellers will debate whether the pandemic made delivery of promised goods “impracticable.”

The Uniform Commercial Code (or UCC) is a model set of laws that governs commercial transactions including the sale of goods. Virtually all states in the U.S. have adopted the UCC as part of their statutes, although some minor differences can be found on a state-by-state basis. UCC Section 2-615 (as adopted in North Carolina as N.C. Gen. Stat. § 25-2-615) addresses the defense of commercial impracticability, which can excuse a seller from timely delivery of goods due to unforeseen circumstances. Under North Carolina law, a seller can be excused where:

1. Performance has become impracticable. While impracticality is a lower standard than impossibility, it will still require unusual circumstances. For example, a mere increase in the cost of obtaining the goods is not a sufficient excuse; but a “severe shortage of raw materials or of supplies” due to a major calamity may suffice.

2. The impracticability was due to the occurrence of some contingency which the parties expressly or impliedly agreed would discharge the promisor’s duty to perform. Where delivery of the goods becomes impracticable because of an event or circumstance that could not have been foreseen by a reasonable person, an implied agreement to excuse performance may be found.

3. The promisor did not assume the risk that the contingency would occur. If the seller agreed to be liable for delivery even in the event of a catastrophe, the defense of commercial impracticality will not apply.

4. The promisor seasonably notified the promisee of the delay in delivery or that delivery would not occur at all. The seller must give the buyer notice of the problem in a timely manner.

The N.C. Court of Appeals has stated that “when an exclusive source of supply is specified in a contract or may be implied by [the] circumstances . . . failure of that source may excuse the promisor from performance.” However, absent a “single source clause” in a contract or other evidence that the parties knew the seller had only one source to obtain the promised goods, a seller may not be excused merely because it could not obtain goods from its anticipated supplier. Accordingly, in the 1996 case of Alamance County Board of Education v. Bobby Murray Chevrolet, Inc., a General Motors dealer was not excused from delivering 1,200 school bus chassis to a group of school systems, even though its anticipated supplier, GM, could not timely provide the goods. Although the dealer referenced “GM” goods in its bid, the contract also said that “products of any manufacturer may be offered.” The N.C. Court of Appeals therefore held that the dealership could have sourced the goods from another supplier and was liable for $150,000 in additional cost that the school systems had to incur to obtain the goods from another seller.

Whether COVID-19 will provide an excuse for not delivering promised goods will depend on the provisions of a given contract – including provisions allocating risk or specifying whether the seller is restricted to one supplier. It will also depend on when the contract was formed. Whether the coronavirus pandemic was foreseeable in mid-2019 is an entirely different question from whether it was foreseeable at the start of 2020. Furthermore, the analysis will be affected by whether the seller gave timely notice of delay. In cases where a seller cannot timely deliver goods due to COVID-19 issues, an attorney who is familiar with the UCC can help analyze whether the failure is excusable – or whether it creates a viable claim by the buyer for money damages.

About the Author

Elliot Fus

Paying the Rent: COVID-19 and Lease Obligations Under NC Law

In a recent post, I discussed the effect of COVID-19 on real estate closings. Another topic affecting the real estate industry is whether coronavirus will excuse tenants from paying rent. While tenants of all sorts may experience difficulty paying rent in light of current economic challenges, commercial leases present an especially complex legal issue. In the commercial context, a tenant may find itself not only short of cash, but expressly prohibited from operating its business as intended.

Legal concepts that are important in evaluating whether a commercial tenant might be excused from its lease obligations include “force majeure” and the doctrines of “impossibility” and “frustration of purpose.” Each of these concepts has been examined by North Carolina courts in the context of landlord-tenant disputes.

Force Majeure

Leases sometimes include force majeure provisions that expressly address the parties’ obligations in the event of an “act of God” or other catastrophe. If a lease contains such a provision, its wording will be critical. For example, in a 2018 case before the N.C. Business Court, a law school lost its license to operate and argued that it should be excused from performing its obligations as a tenant. (South College Street, LLC v. Charlotte School of Law, LLC, 2018 NCBC 80.) While the lease contained a force majeure provision that excused performance based on “inability or delays in obtaining governmental permits,” the provision expressly stated that it only applied to duties “other than the payment of any monetary sums due hereunder” – a detail on which the court relied in finding that the tenant breached the lease by failing to pay rent. Obviously, if the parties to a lease clearly agree in writing that unexpected catastrophes will not excuse the payment of rent, a tenant will be severely constrained in arguing otherwise.

Impossibility & Frustration of Purpose

The doctrines of impossibility and frustration of purpose are also important – particularly when a lease does not contain a force majeure provision that squarely addresses the crisis at hand. These legal concepts were examined in the N.C. Court of Appeals case of WRI/Raleigh, L.P. v. Shaikh, 183 N.C. App. 249 (2007). There, a tenant in a shopping center learned, after signing a lease to operate a restaurant, that applicable city ordinances required a much larger “grease trap” than what the premises contained — and that, based on the layout of the premises, a new grease trap system would likely experience repeated clogging. The court found that the tenant breached the lease after he did not open his business and returned the keys to the landlord. The doctrine of impossibility applies where “the subject matter of the contract is destroyed” or it is otherwise literally impossible to adhere to a contract. The court noted that, where the premises still existed and a new tenant was in fact actually operating a restaurant in the space, the doctrine of impossibility was inapplicable. The court also discussed the similar doctrine of frustration of purpose, which applies where performance under a contract is possible, but an event which was not reasonably foreseeable makes the contract of virtually no value. The jury in the case decided that the predicament could have been reasonably foreseen.

Other Guidance from N.C. Courts

Other North Carolina landlord-tenant cases provide further guidance on these doctrines:

In Taylor v. Gibbs, 268 N.C. 363 (1966), the N.C. Supreme Court held that a tobacco farm tenant breached its lease by failing to pay the full rent. While the tenant argued that unanticipated “acreage-poundage” regulations limited his yield, the lease was enforced as written, despite any “unforeseen and unexpected eventuality.”

In Knowles v. Carolina Coach Co., 41 N.C. App. 709 (1979), the Court of Appeals held that a tenant breached its lease by failing to pay rent. The tenant rented a bus station from Carolina Coach to operate a ticket agency for carriers including Carolina Coach. When Carolina Coach suspended operations because of a labor strike, the ticket agency was still required to pay rent. The court noted that fluctuation of traffic levels in the station was a normal business risk that should not have been “beyond the imaginations of the contracting parties” and could have been specifically addressed in the lease.

In Tucker v. Charter Medical Corp., 60 N.C. App. 665 (1983), the Court of Appeals likewise found that frustration of purpose did not apply. There, a tenant leased premises to build a hospital. Although the city denied approval for a certain hospital building, the court held that the building could have been built if the tenant had not requested a rezoning – and, in any event, the lease did not restrict use of the premises to a hospital.

In Crabtree Valley Investment Group, LLC v. Steak & Ale of N. Carolina, Inc., 169 N.C. App. 825 (2005), a tenant was evicted for failure to pay rent during a period of time in which the tenant was awaiting receipt of a W-9 tax form from the landlord. The tenant argued that a force majeure provision excused performance based on events beyond the tenant’s control. The court stated that receipt of the W-9 was not legally required for the tenant to pay the rent and that receiving the W-9 prior to payment was merely the tenant’s internal policy.

In the Charlotte School of Law case, the Business Court also rejected an argument of frustration of purpose – not only because the parties had agreed on how to allocate risks in their force majeure provision, but because the tenant had other options for using the premises. Specifically, the lease allowed the premises to be used for purposes other than a school – and it generally allowed the tenant to assign the lease or to sublease to another party.

Looking Forward

At the current moment, North Carolina civil courts are essentially frozen, and litigation over non-payment of rent is temporarily hindered. However, once courts are again operational, litigation over unpaid rent may be abundant. Whether landlords will, as a business decision, want to evict mass numbers of tenants in a shaky economy will have to be seen. However, issues about force majeure, impossibility and frustration of purpose will certainly arise. Disputes may turn on the particular language of a lease provision – or on facts such as whether a “stay at home” order totally outlawed a particular business from operating or merely made it more difficult to generate revenue.

Landlords and tenants who expect a dispute should review their leases carefully, with the assistance of an experienced lawyer. Landlords should also review their standard lease forms now with an outlook to the future. While current disputes may turn on the language of leases that were signed years ago, the COVID-19 crisis is a reminder that catastrophes will happen again. When they do, it will be beneficial to have planned ahead.

About the Author

Elliot Fus

Elliot has practiced law for over 20 years and is a member of the Federal, North Carolina and Forsyth County bar associations. He is an experienced litigator with major case experience in state and federal courts and in private arbitrations. Elliot has a broad range of experience with real estate disputes in contexts ranging from shopping centers to affordable housing complexes.

Stay at Home — What About Our Closing?

As the world hunkers down in response to COVID-19, the virus presents many questions for the real estate industry – and the potential for disputes about whether a deal can close in light of the current “lockdown” environment. This issue may arise in commercial or residential contexts. However, particularly with regard to home sales, whether a seller must vacate his or her house at this time (or a buyer must complete a transaction that was premised on the ability to currently undertake a move) can raise serious health and safety concerns.

While the economy has dramatically slowed, real estate marketing and home sales continue – at least in many areas. Here in North Carolina, for example, the governor’s “stay at home” order exempts “essential” businesses, including: professional services, such as “real estate services (including brokerage, appraisal and title services)”; legal services; financial and insurance institutions; and “critical trades” like moving and relocation services. Business can go on, even if in a “socially distanced” way. But can a party to a real estate contract be forced to close a deal now? There is no clear answer for every case; however, various factors should be considered.

Residential or commercial? Whether a contract is residential or commercial may be important. For instance, in a residential context, a seller’s health could be put at risk, if he or she is forced to vacate a home now. This concern may not apply in a commercial setting. But special circumstances might apply to businesses as well. If a buyer agreed to buy a property in order to operate a business and a state or local order now prohibits (or drastically impedes) such a business from operating, it could be argued that the entire purpose of the deal has been “frustrated” and that the buyer should be excused from its obligations.
Force Majeure. Does the contract have a “force majeure” provision that specifically addresses “acts of God” and other unexpected calamities? In a large commercial transaction, it probably does. In a standard form residential contract, maybe not.
Postponement. Can the parties mutually agree on terms to postpone the closing? The N.C. Association of Realtors recently issued a COVID-19 Addendum form to supplement the standard sales contract. The addendum allows the parties to extend deadlines and provides other related terms. Of course, if no one knows exactly how long we will be affected by COVID-19, even negotiating an extended closing deadline might be tricky.
Leasing Options. In some situations where a seller may not wish to currently vacate a property, it may be workable to close a sale and then have the seller continue to occupy the property under a lease. In North Carolina, a standard Seller Possession After Closing Agreement might be used – or a more detailed formal lease could be drafted by a lawyer.
Stay at Home Orders. What are the terms of all applicable “stay at home” orders in your locality? Consider that local orders may be more restrictive than any statewide order.
Litigation. If the parties cannot negotiate a resolution, what are their options? Potentially, if a real estate contract is breached, the non-breaching party could sue for “specific performance” (a court order forcing the other party to complete the deal) or for “damages” (money lost as a result of the breach). In some circumstances, such action may be necessary. However, with courts currently restricting hearings and other litigation activities, a resolution in court may not be quickly achieved. Moreover, existing legal precedents may not be completely reliable to predict how judges and juries will view the very “novel” issues presented by COVID-19.

About the Author

Elliot Fus

Elliot has practiced law for over 20 years and is a member of the Federal, North Carolina and Forsyth County bar associations. He is an experienced litigator with major case experience in state and federal courts and in private arbitrations. Elliot has a broad range of experience with real estate disputes law in contexts ranging from shopping centers to affordable housing complexes.

Deceased Tenant? There’s a Procedure to Follow

A challenge occasionally faced by residential landlords is what to do if a tenant dies during the term of the lease and no one “steps in” to handle the tenant’s estate. Landlords of low-income subsidized housing may be especially likely to encounter this scenario. Many low-income tenants have not made a Will that would appoint an Executor and otherwise don’t have sufficient assets to entice a relative to take the necessary steps to “open an estate” and qualify to handle the deceased tenant’s affairs.

If rent is no longer being paid for the deceased tenant, some landlords may think that it is appropriate to dispose of the tenant’s personal belongings as they see fit and retake possession of the premises. However, landlords in North Carolina should be aware that there is a proper way of handling the situation.

What to do if the property is left unoccupied

An initial question is whether anyone continues to occupy the leased premises. If the premises are not occupied by a person, then the landlord may – if no estate has been opened, and the paid rental period has expired for at least 10 days – file an affidavit with the court that provides information about the tenant’s death and the items remaining in the premises. The landlord must send a copy of the affidavit to any contact person who the tenant listed (or, if none, must post notices about the affidavit). After the affidavit is filed, the landlord can remove and store the tenant’s property and retake possession of the premises. After 90 days, if no one has duly qualified to collect the tenant’s belongings, the landlord can then either give the items to a non-profit organization or sell the items. Proceeds from selling the items can be applied to unpaid rents or other costs; however, a sale requires posting of certain notices. The landlord must provide an accounting to the court with regard to any donation or sale of the items.

What to do if the property remains occupied

If any person occupies the premises after the tenant’s death (for example, a friend or relative is living in the property), a different issue is presented. If the person was a co-tenant with the deceased tenant, the co-tenant can likely continue with the lease – and deal with the issue of what to do with the deceased tenant’s things. However, assuming that the occupant has no right to continue renting the premises and needs to be removed, the proper procedure can be tricky. Arguably, the person is a trespasser and could be locked out, with no recourse against the landlord. But a more prudent path would be to file an eviction lawsuit to regain possession of the premises. In light of the fact that North Carolina’s eviction procedures require a landlord-tenant relationship between the plaintiff and defendant to initiate “summary ejectment” proceedings, this raises a question about who to name as the defendant in the suit. The occupant (who is not actually a tenant)? The original tenant (who is dead)? One solution is for the landlord to have a “public administrator” appointed as the representative of the tenant’s Estate and then sue the public administrator. Ultimately, significant costs and headaches can be encountered, if this situation arises. An experienced landlord-tenant attorney can help.

About the Author

Elliot Fus

Elliot has practiced law for over 20 years and is a member of the Federal, North Carolina and Forsyth County bar associations. He is an experienced litigator with major case experience in state and federal courts and in private arbitrations. Elliot has a broad range of experience with landlord-tenant law in contexts ranging from shopping centers to affordable housing complexes.

North Carolina Legislature Revamps Zoning Regulation Statutes

Land use regulation affects everyone in one manner or another. Our homes, schools, businesses, roads and parks are all subject to local government regulation as to their location, construction and how they may be used. In North Carolina, all city and county zoning and planning regulations derive their power from state law. That is, if a city or county cannot find authority within state statutes to take a particular action, it may not do so unless and until the legislature grants such authority.

NC Zoning Regulations

The state of North Carolina grants zoning authority primarily under two sections of the General Statutes: Article 19 of Chapter 160A for cities; and Article 18 of Chapter 153A for counties. These provisions were compiled into these chapters in 1973, and in the decades since then provisions have been added, amended and repealed to become what nearly everyone agrees is a very disorganized and often confusing compilation of regulations. Local governments had difficulty determining how to validly adopt and administer ordinances based upon this hodgepodge of laws. Developers were often similarly bewildered.

As early as 2015, efforts began to “reorganize, consolidate, clarify and modernize” statutes related to local land use planning and zoning regulations. On July 11, 2019 Governor Cooper signed into law Session Law 2019-111, creating a new chapter of the General Statutes, Chapter 160D, containing 14 Articles and additional statutes clarifying and conforming statutes contained in other chapters of the General Statutes. The former Chapters regulating local land use planning are repealed as of the effective date of the new law, January 1, 2021.

A New Chapter

As described in the North Carolina School of Government’s Legislative Reporting Service, here are some highlights of Chapter 160D:

Includes a new Definitions section, defining terms such as bona fide farm purposes, conditional zoning, etc.
Clarifies the law regarding vested rights.
Contains provisions governing the subject matter and procedure for adopting moratoria on development.
Amends Conflicts of Interest laws as they apply to local elected and appointed officials.
Amends the law regarding the exercise by cities of extraterritorial jurisdiction (ETJ) over zoning.
Brings together provisions for the establishment and procedures for Planning Boards, Boards of Adjustment, Historic Preservation Boards and Appearance Commissions.
Requires all members of appointed boards to take an oath of office.
Establishes sunset provisions for substantial commencement of work following development approval.
Provides for appeals of administrative decisions and includes timelines and procedures for such appeals.
Includes Requirements and Procedures for Quasi-Judicial hearings for some land use decisions, such as appeals of administrative decisions, special use permits and variances.
Restates requirements for Comprehensive Plans as a condition for enforcement and application of zoning ordinances. Allows for the adoption and use of narrower comprehensive plans to cover smaller geographic areas within a jurisdiction or to deal with subjects such as transportation and greenspace preservation.
The procedures for adopting, amending or repealing Development Regulations are clarified, particularly with regard to notice requirements.
Classifications of Zoning Districts are limited to the following: 1) conventional districts; 2) conditional districts; 3) farm-based districts; 4) overlay districts; and 5) special districts allowed by Charters.
Allows administrative staff changes for minor modifications in conditional districts and for special use permits.
Consolidates and clarifies Subdivision Regulation Ordinances.
Chapter 160D also provides for regulation of particular kinds of land uses (e.g., adult businesses, agricultural uses, etc.), manufactured and modular homes, historic districts, environmental regulation, wireless telecommunication facilities, community appearance commissions, development agreements, solar collectors, and more.
Articles under Chapter 160D also address Building Code Enforcement, Minimum Housing Codes, Open Space Acquisition and Community Development.

Compliance with the provisions of Chapter 160D will require nearly all counties and municipalities to adopt and/or amend their land development regulations as of the effective date of this legislation, January 1, 2021. Land developers may see changes prior to this date. It is recommended that developers consult with county and municipal staff to stay current on local regulation changes. Blanco Tackabery has attorneys who are skilled in this area to assist you.

About the Author

Bowen C. Houff

Bo has been practicing law for over 30 years. His practice is concentrated primarily in the areas of municipal law, zoning and business litigation. He regularly represents Municipal councils Boards and committees as well as developers seeking rezoning of land, special and conditional use permits and favorable interpretations of zoning ordinances.

Take It from a Rap Star – Pay Attention to Lawsuit Papers

If you have some experience with contracts, you’ve likely heard the phrase “liquidated damages.” While this term might sound mysterious to many people, the concept is relatively easy to understand. Liquidated damages are basically an agreed-upon amount of money that a party to a contract will be required to pay in the event that the party breaches the contract.

Use of a liquidated damages provision can be effective at avoiding costly disputes over how much financial harm was caused by a breach of contract. However, these provisions are not always enforceable and should be crafted with care.

What’s the Problem?

The crux of a liquidated damages provision is that it is to be used in a situation where you can’t easily determine what “actual damages” would be caused by the breach. So, to avoid the difficult exercise of proving actual financial harm, the parties will stipulate to an amount that they think is reasonable.

For example, let’s say that a shopping center rents a space to a tenant to operate a business. The lease requires the tenant to be open for business every day. The parties understand that, if one tenant in the shopping center “goes dark” and is not operating, the shopping center as a whole will be less vibrant, have less customer traffic, and be less profitable. The parties also understand, however, that – if one business in the center violates the agreement by not continuously operating – it will be very difficult to establish exactly how much money was lost by the shopping center. Therefore, the parties agree to an amount of liquidated damages that will be imposed in the event that a tenant stops operating, so that the center is not required to provide evidence of its actual financial damages (which may be impossible to calculate).

The trick with liquidated damages provisions is that their enforceability is often subject to debate. If the liquidated damages are not reasonable, then a court may deem them to be an unenforceable “penalty.” As stated by North Carolina courts: “A stipulated sum is for liquidated damages only (1) where the damages which the parties might reasonably anticipate are difficult to ascertain because of their indefiniteness or uncertainty and (2) where the amount stipulated is either a reasonable estimate of the damages which would probably be caused by a breach or is reasonably proportionate to the damages which have actually been caused by the breach.”

Notably, in the context of the shopping center lease described above, a North Carolina appeals court recently upheld a liquidated damages provision that required the tenant to pay double rent for each day that its business was not operating. The tenant did not show that the amount was unreasonable, according to the court. But what if the provision called for triple rent? Quadruple rent? Perhaps the outcome would have been different.

Use These Provisions Carefully

Liquidated damages provisions appear in a variety of contexts, addressing issues that range from delays on construction projects to buyers backing out of real estate deals. These provisions can be very useful. But before inserting a liquidated damages provision in a contract, significant thought should be given to whether the provision is necessary and reasonable. If a party could easily determine its actual financial losses in the event of a breach, liquidated damages are probably inappropriate. Furthermore, the amount of liquidated damages should be carefully developed on a case-by-case basis. Otherwise, a seemingly favorable liquidated damages provision may wind up being the subject of litigation – and ultimately may not be enforceable.

About the Author

Elliot Fus

Elliot has practiced law for over 20 years and is a member of the Federal, North Carolina and Forsyth County bar associations. He is an experienced litigator with major case experience in state and federal courts and in private arbitrations. Elliot also has a broad range of experience with landlord-tenant law and has assisted many of North Carolina’s premier shopping centers.

Seven Common Legal Pitfalls of Owning a Business And the Proven Ways to Prevent Them – Pitfall #7

Owning a business is exciting at times, frustrating at others, but always demanding. There are so many decisions to make on a daily basis, and often, as a business owner, you not only have to make the decisions, but must also roll up your sleeves to make those decisions bear fruit. One decision you should make early as a business owner is determining who will be your trusted advisors to guide you through the legal and accounting issues your business will encounter. Selecting a professional to assist you with legal and accounting decisions is vital to launching and maintaining a viable enterprise, because decisions made early in the formation of a business can have far reaching consequences down the road.

In my practice, I often see clients who chose to handle matters without engaging attorneys and accountants early in the process, and later failed to recognize issues as they arose during the day-to-day operations of the business. Those decisions can cost business owners far more money down the road than hiring the appropriate professionals in the beginning, and can have a significant effect on the ultimate success or failure of the business. I have found those mistakes fall into seven basic categories. This is Pitfall number 7 of 7 common pitfalls I see businesses owners make.

Pitfall # 7 – Failure to Address Customer Relations

Written Contracts with Customers/Vendors — I cannot stress enough that the days of a handshake deal are gone. Businesses must have written purchase orders, invoices, contracts, leases and estimates to conduct business in today’s world. Moreover, having it in writing avoids the stress, confusion and misunderstandings between the business and the customer when it comes time to deliver the goods or services and get paid. Business owners should have a business attorney draft sound business forms for use by the company. The cost of doing so is just a fraction of what it costs to defend a lawsuit produced by shoddy forms downloaded from a free internet site.

Customer Service/Satisfaction — At the same time, “the customer is always right” has not gone out of style. There are so many options for customers in today’s marketplace. A savvy business owner will make sure the company’s employees are well groomed, pleasant, enjoying their job, able to address a customer’s issue, and make the buying experience a positive one the customer will repeat.

Monitor Internet/Social Media — From a reputational risk standpoint, the pervasive use of the internet and social media has created new challenges for business owners. Sites that offer customers the opportunity to evaluate a company’s performance or products should be monitored so any derogatory or unflattering information can be noted, addressed, and responded to, if appropriate. Word of mouth now has the potential to reach hundreds, if not thousands of potential customers.

Privacy Policy — Having a privacy policy is not just good business, it is legally required for any company that collects information about its customers. The law requires disclosures to customers about how the business uses the information it collects from them and whether it shares that information with affiliates or third parties. Customers have a legal right to know how a company uses its information, and the company is required to publically disclose its privacy policy.

Protect Customer Data — Cyber security should be a consideration for any company in today’s business environment. All businesses are at risk of being hacked and having customer, employee, and other sensitive data compromised. Businesses should consult with an information technology specialist that can recommend safeguards to put into place to provide maximum protection of customer data. In addition, businesses may want to consult with their insurance provider to see if their general liability policies cover cyber-attacks, and if not purchase separate cyber insurance to protect against the damage that can be done by a hacker.

About the Author

Ashley Rusher

Ashley focuses her practice on Outside General Counsel Services and Business Bankruptcy and Creditor’s Rights Practice Areas. She is an effective, results-driven advocate for her clients. Her background of 30 years in business bankruptcies, distressed debt workouts, problem loan recovery, and real estate title and commercial litigation provides her with a solid foundation of general business, accounting and legal skills.

Liquidated Damages in Contracts: Effective But Tricky

What’s the Problem?

Use These Provisions Carefully

About the Author

Elliot Fus

Elliot has practiced law for over 20 years and is a member of the Federal, North Carolina and Forsyth County bar associations. He is an experienced litigator with major case experience in state and federal courts and in private arbitrations. Elliot also has a broad range of experience with landlord-tenant law and has assisted many of North Carolina’s premier shopping centers.

Constructive Eviction: When a Tenant Is “Forced” to Leave

Imagine that you are a landlord and your tenant vacates the leased property in the middle of the lease period and stops paying rent. You might assume that you have an iron-clad legal case against the tenant for breaching the lease. However, if an allegation of “constructive eviction” arises, things might not be so simple.

Constructive eviction is a concept which means that, when the premises are intolerably bad due to the fault of the landlord, the tenant will be allowed to vacate without being responsible for breaking the lease. In other words, the conditions are so bad that the landlord is effectively forcing the tenant to leave. Or stated another way, the landlord is “evicting” the tenant by failing to provide decent premises, even if the landlord has not actually asked for the tenant to vacate (and, in fact, wants to the tenant to stay).

Untenable Conditions

Under North Carolina law, constructive eviction occurs when a landlord “breaches a duty under the lease which renders the premises untenable.” Although the North Carolina courts have not defined the term “untenable,” presumably this term means that the premises are in such a condition that no tenant could reasonably be expected to stay there. Exactly what conditions constitute constructive eviction are usually subject to debate. Problems such as persistent building code violations, serious ongoing roof leaks, electrical problems or other safety hazards might provide a strong argument for constructive eviction. Other problems (such as a bad odor, noise issues, etc.) may provide a less compelling argument, depending on the circumstances.

Importantly, if a tenant claims constructive eviction, the tenant must show that it “abandoned the premises within a reasonable time” because of the condition of the premises. If a tenant stays in the premises for a long time, an argument of constructive eviction is unlikely to succeed. After all, if a tenant actually stays in purportedly intolerable premises for many months before finally vacating, it seems hard to say that the tenant “had to” leave.

An allegation of constructive eviction can radically change the dynamics of a landlord-tenant case. Whereas a tenant might usually owe the landlord money for prematurely vacating the premises, a tenant arguing constructive eviction can assert that the landlord was the party that breached the lease and seek money in court from the landlord for damages such as moving expenses and lost profits associated with being “forced” to move.

Important Considerations

The merits of a constructive eviction allegation will depend on the facts of each case. Parties in a dispute about constructive eviction should consider, among other things:

Does the case involve a residential or commercial lease? The expectations for what is intolerable may differ. For instance, having no hot water for an extended period of time may be seriously problematic for a home, but only a minor nuisance for an office that rarely uses hot water.
What are the terms of the Lease? Particularly in landlord-friendly commercial leases, the landlord’s obligations to the tenant may be extremely limited.
Did the tenant timely abandon the premises? There is no set duration for what constitutes a “reasonable” time. Sometimes, it may be infeasible for a tenant to immediately vacate when intolerable conditions arise. However, the more time it takes to vacate, the less likely a constructive eviction argument will succeed.
Did the tenant sign anything confirming that the premises were indeed satisfactory? In commercial leases, tenants are sometimes required to sign “estoppel” certificates to confirm that they are satisfied with the premises. Once an estoppel is signed, the tenant may not be able to “change its tune” later and say that the premises were defective.
Are there facts that show that the tenant really left the premises for reasons other than the condition of the premises? A business that has failed because of its own bad management or poor business model may attempt to use constructive eviction as an excuse to stop operating without incurring liability for a broken lease. In a lawsuit, the landlord may want to explore relevant facts through “discovery” techniques such as document requests and depositions.

About the Author

Elliot Fus

Elliot has a broad range of experience with landlord-tenant law and has assisted many of North Carolina’s premier shopping centers in matters ranging from routine collection issues to complex jury trials.

Seven Common Legal Pitfalls of Owning a Business And the Proven Ways to Prevent Them – Pitfall #6

In my practice, I often see clients who chose to handle matters without engaging attorneys and accountants early in the process, and later failed to recognize issues as they arose during the day-to-day operations of the business. Those decisions can cost business owners far more money down the road than hiring the appropriate professionals in the beginning, and can have a significant effect on the ultimate success or failure of the business. I have found those mistakes fall into seven basic categories. This is Pitfall number 6 of 7 common pitfalls I see businesses owners make. Over the next few weeks, I will be sharing all 7 of these pitfalls and proven ways to prevent them.

Pitfall # 6 – Failure to Understand Personal Guarantees

Often a business may not be creditworthy on its own, and lenders and trade vendors will seek a personal guaranty from an owner, officer, manager or affiliate of a company. It is important to understand the type of guaranty an individual or affiliate of the business is being asked to execute. Most business owners think they will only be liable after all resources of the company have been exhausted when they sign a personal guaranty. They are surprised to learn that today most commercial guaranty agreements are unconditional, unlimited guaranties of payment. Generally, that means the guarantor is also primarily liable for the debt and can be looked to for payment of the debt without the lender first seeking collection from the company or its assets. Close attention should be paid to any request to execute a personal guaranty.

Also, many trade vendors include a personal guaranty provision at the end of their business contracts. Accordingly, many times owners end up signing a guaranty, without fully understanding the import of what they are signing. All business owners should be looking for personal guaranty provisions contained within a contract and looking for a separate signature line when signing vendor contracts. If a business owner is unsure of what the vendor is asking for in the contract, he or she can always ask to have the document reviewed by an attorney before signing.

About the Author

Ashley Rusher

Seven Common Legal Pitfalls of Owning a Business And the Proven Ways to Prevent Them – Pitfall #5

In my practice, I often see clients who chose to handle matters without engaging attorneys and accountants early in the process, and later failed to recognize issues as they arose during the day-to-day operations of the business. Those decisions can cost business owners far more money down the road than hiring the appropriate professionals in the beginning, and can have a significant effect on the ultimate success or failure of the business. I have found those mistakes fall into seven basic categories. This is Pitfall number 5 of 7 common pitfalls I see businesses owners make. Over the next few weeks, I will be sharing all 7 of these pitfalls and proven ways to prevent them.

Pitfall # 5 – Failure to Protect Intellectual Property

Types of Intellectual Property — what is intellectual property? Most companies have heard of patents, copyrights and trademarks, but seldom recognize the need to protect certain aspects of the business which safeguard unauthorized use of this type of property by others. Patents protect ideas, concepts, systems, or mechanisms which are novel and unique. Specially licensed attorneys practice patent laws, and the regulations for filing patent applications and maintaining patents require their special attention. Copyrights protect creative expression fixed in a tangible medium. Examples of copyrighted materials are written works, music, and video. Trademarks protect designs, phrases or words which brand a product, service or business. Registration of copyrights and trademarks can provided added protection for a business. Any business that creates a brand, creates an idea or publishes a creative expression should consult with an intellectual property attorney to determine if their idea should be protected from unauthorized use by third parties.

Trade secrets are certain commercial information about a business which is not disclosed to the public, such as a customer list, the McDonald’s secret sauce recipe, or a business plan which must be maintained in secrecy for the success of the company. Contracts with trade vendors, employees, consultants, and anyone else invited into a business and given access to trade secrets should contain special provisions to protect the integrity of a company’s trade secrets.

About the Author

Ashley Rusher