How a Call to Service May Impact Rights and Obligations Under a Lease

Under the SCRA, if a tenant is called to active duty and he or she cannot be present to defend him- or herself in person or through counsel, and the requirements of the act are met, legal proceedings against that individual are automatically stayed for a period of not less than 90 days. Moreover, under 50 U.S.C.A. Section 3933, if a stay is imposed, a penalty cannot accrue against the tenant for failure to comply with the terms of the lease during the period of the stay. This could impact a landlord's ability to assess default interest on unpaid balances or late fees. Furthermore, a court has discretion under such section of the statute to reduce or waive fines or penalties imposed unrelated to any action. Florida courts have applied the SCRA even where there was not strict compliance with the statute, such as when the service member failed to furnish proof from a commanding officer stating that military duty has prevented an appearance in a legal proceeding.

Section 3955 of the SCRA is titled “Termination of Residential or Motor Vehicle Leases.” While Section 3955 at first blush appears to mimic Florida Statutes Section 83.682 insofar as it allows a service member to terminate a residential lease, upon closer examination, it appears to be much more expansive, allowing a member of the service to rescind a business lease as well. Specifically, “covered lease” under Section (b)(1) is defined as “a lease of premises occupied, or intended to be occupied, by a service member or a service member's dependents for a residential, professional, business, agricultural or similar purpose ….” While there are few reported court decisions addressing the application and interpretation of this portion of the statute, certainly a compelling, if not indisputable, argument can be made for its application. At a minimum, it may put a service member in a position to be able to negotiate with a commercial landlord who may be left with a nonperforming tenancy and no way to remove such a tenant from the property until the service member returns from active duty. Of course, if the lease is in the name of a legal entity and not the name of the service member, it is doubtful that this statute can be applied against the landlord who would then have full recourse under the terms of its lease unless a waiver has been furnished by the tenant in accordance with Section 3918 of the SCRA.

Another minefield for commercial landlords dealing with those called to military service are claims that the lease has been commercially frustrated or is impossible to perform. Under these legal theories, a service member who has been called up could potentially claim that the lease should be rescinded because it would be impossible for him to perform under it while away serving the country. While certainly such defenses to any action by the landlord for nonperformance might not be applicable if it was reasonably foreseeable that the tenant might be pressed into service, the landlord will have to hope that no such finding of foreseeability can be made. Again, a landlord will have a strong argument to claim that such defenses to enforcement of a commercial lease do not apply if the lease is not in the service member's name.

Tenant Defenses

Lastly, an examination of a commercial landlord's rights where a tenant is called to active duty would not be complete without considering the legal doctrine of impossibility of performance or force majeure provisions under a lease. Clearly, in cases of sole proprietorship of a one-person business, when that person is called to military service, he cannot perform his legal obligations under a lease.

In order to maintain the defense of impossibility of performance, the tenant who is called to duty must not have known that he or she would be called or must show that it was unforeseeable that such an event would occur at the time the lease was executed. However, if one is serving on active duty, it most likely is foreseeable that he or she could be ordered to leave the area of the leased premises due to the needs of the military. What is not so clear is whether someone in the reserves could make the argument that the possibility that he would be ordered to service was unforeseeable. Certainly the argument could be made that it was not foreseeable under the circumstances at the time the lease was executed.

The scope of force majeure clauses tend to be broader than impossibility-of-performance arguments, as they typically cover both foreseeable and unforeseeable events. Whether or not someone called to serve can rely on such provisions will depend on the language contained in them. If the force majeure provision only extends to the landlord, there will be an issue of applicability to the tenant. More importantly, you must examine just which events are covered by the provision. It is conceivable that service-related events may not even be enumerated. If the only event relevant to a service member is an act of war, it is questionable whether the provision could be applied where the tenant is called to active duty in a situation that does not amount to war.

Conclusion

Based on the foregoing, it is clear that both parties to a lease, where the tenant is an active member of the armed forces or in the reserves, must be cognizant of how a call to service could impact their respective rights and obligations under a commercial lease.

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Andrew Dector, a shareholder with Shapiro, Blasi, Wasserman & Hermann, in Boca Raton, FL, has represented clients in commercial and real estate litigation, including commercial landlords, in both state and federal courts and in arbitration and mediation for more than three decades. He may be reached at 561-477-7800 or [email protected]. This article also appeared in the Broward Daily Business Review, an ALM sibling publication of this newsletter.