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COVID-19: What Business Owners Need to Know

While people have widely adopted social distancing and self-quarantining to an extent unknown in recent times, this interruption to daily life is rapidly being felt across industries and companies of all sizes with no clear indication of when business will return to normal.  Below is an overview of some of the business issues facing our clients due to the COVID-19 pandemic and the economic uncertainties impacting everyone today.

Force Majeure Provisions

With the caveat that each contract, lease, purchase and sale agreement, etc., have different terms and the relationship of the parties is of critical importance, there are common provisions that cut across most business agreements.

Many contracts (especially leases) contain force majeure provisions that typically serve to excuse the nonperformance of a party’s contractual obligations if such party is unable to perform due to an event beyond their control, except in many cases the obligation to make monetary payments in accordance with the contract.

Although few force majeure provisions specifically include language listing illness or pandemics as causes, most do include “acts of God” as an acceptable reason for nonperformance. O.C.G.A. § 1-3-3 defines an “act of God” as “an accident produced by physical causes which are irresistible or inevitable, such as lightning, storms, perils of the sea, earthquakes, inundations, sudden death, or illness.”

While the answer depends on the specific language, local law and the causal connection between COVID-19 and the party’s inability to perform, COVID-19 and its consequences will likely be viewed as a force majeure event.

We suggest that you act proactively and work with the other party now to agree on a suspension or tolling of obligations under each contract and develop a plan for addressing upcoming non-monetary obligations.

Ultimately, the economic fallout due to COVID-19 likely will not give rise to relief from monetary obligations under Force Majeure provisions; however, we encourage you to work cooperatively with your counterparts to mitigate negative outcomes for all parties.

We are seeing a variety of creative proposals between landlords and tenants so both parties can increase their chances of surviving the current crisis. Some landlords are agreeing to a short term (e.g., 60-90 days) suspension of rent payments and adding those deferred obligations to the end of the lease term; others are accelerating free rent from future renewal periods to the current term.

Every lease situation is different and solutions will vary but proactively addressing the situation is useful in maximizing future value and minimizing overall damages.

Business Interruption / Rent Loss Insurance

Many businesses have insurance policies in place to cover business interruption (for tenants/users) or rent loss coverage (for landlords/owners). While the losses arising from COVID-19 are significant, most of these policies require the interruption to result from physical damage to the property at which the business operates. As such, COVID-19 does not cause physical injury or damage to the property in a way covered by these insurance policies. Additionally, due to prior health crises, many policies have specific exclusions related to losses caused by a virus or other disease.

However, because policies vary in scope and coverage, it is worth exploring any policies you have in place to determine the coverage you may have and review these provisions, specifically as to coverage relating to pandemics, quarantines, and government regulations or orders with your policy provider (or an attorney specializing in insurance law) for a detailed analysis of coverage.

Finally, while a policy may not cover a particular loss, there may be a benefit to filing the claim, even if denied, the proof of filing may aid in the application for and receipt of government relief if it is available.

Cyber Insurance

The amount of business being conducted remotely using internet resources is increasing significantly as businesses adjust to “working from home” during this time. With increased remote working comes increased risk to sensitive information. It is important to ensure that remote workers are properly trained in best practices on security to defend against cybersecurity threats and are up-to-date on all security policies. For example, accessing company networks using unsecured Wi-Fi, makes workers more susceptible to the risk of an online attack as connections are not encrypted and could make it easy for malicious actors to steal data or access credentials. Physical security of company-issued devices is also a problem for a remote workforce, though with self-quarantining there is less likelihood of working in a public place like a coffee shop, it is still part of best practices to maintain physical security of company devices.

We encourage you to review your cyber risk insurance policy with your policy provider to determine if your existing coverage is sufficient and your business’s security protocols.  

Financing Options

There are several options to explore in financing your business. Just a few options to consider:

  1. U.S. Small Business Administration (SBA) Disaster Loan Assistance Program provides repayable loans up to 4% interest on up to $2 million. Open to Small Business, Small agricultural cooperative, and most private nonprofit organizations that have suffered a substantial economic injury.
  2. JP Morgan Chase provides repayable loans and has made a $50 million global philanthropic commitment in addressing the immediate public health and long-term economic challenges from the COVID-19 global pandemic. Of the initial $15 million released, the firm will promptly deploy $5 million in the U.S., to support vulnerable and underserved Black, Hispanic and Asian Pacific Islander owned small businesses that may struggle to access capital and keep their doors open.
  3. Invest Atlanta–Business Continuity Loan Fund (BCLF) provides repayable loans to ensure the viability of city businesses and to help sustain employment, Invest Atlanta has established a Business Continuity Loan Fund (BCLF) with $1.5 million of funding from the City of Atlanta. The fund will offer small businesses 0% interest loans to address a lack of working capital and cash flows as a result of reduced consumer demand, the ability to fulfill product or service orders and other economic conditions. Loan terms include an option for 6-12 months deferred interest with 5 years to repay the loan.
  4. Facebook Small Business Grants are offering $100 million in cash grants and ad credits for up to 30,000 eligible small businesses in over 30 countries where Facebook operates.

Please keep the above issues in mind as you review your legal documents. We invite you to contact any of our attorneys for further advice and analysis.

We hope you and your family continue to stay safe and healthy during this time.

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