Seven Legal Strategies To Keep Your Business Alive Through The Pandemic

1. File a business interruption claim.

First, check your insurance policy. If it includes business interruption coverage, you may be able to claim due to the Covid-19 shutdown. 

Contact your insurance provider to identify the next steps, keeping in mind that your lawyer may need to get involved. Unfortunately, insurance companies are experts at avoiding payment — that’s why there are so many lawyers.

2. Examine your contracts for force majeure.

Check your rental agreements and other contracts for a “force majeure” clause, which may let you out of the contract without a penalty. Force majeure relieves you from your obligations when unforeseeable circumstances impact your ability to fulfill them. For example, you may be able to break your lease or get a deposit back from a venue. Unforeseeable circumstances range from war to labor strikes and “acts of God,” such as epidemics or natural disasters. You must prove that you couldn’t reasonably foresee or prevent the issue, which should be straightforward with government statements about the shutdown.

3. Get creative to mitigate the situation. 

If force majeure applies, you must also prove that you can’t avoid or mitigate the impact of the situation. If your business is no longer making revenue to pay the bills, that may be sufficient. However, you’re legally obligated to reduce the damage if possible — which, in my opinion, you should do anyway to save your business. 

For instance, if your restaurant has contracts to buy food supplies, consider offering meal delivery or takeout rather than breaking those contracts. That way, you help keep your staff and vendors in business, creating goodwill that will give you leverage if you need to renegotiate later.

Keep in mind that we don’t know how long this situation will last when calculating whether you can afford to fulfill your contract. If you can’t, let the other party know as soon as possible because force majeure is effective from whenever you give notice.

4. Renegotiate your terms.

Even without these terms in your contract, the Covid-19 shutdown gives everyone an opportunity to renegotiate. Contact your partners and suppliers, explaining that your business is facing significant challenges that have impacted your ability to conduct business. Acknowledge the difficulties they are facing, and ask to discuss your options. 

Approach the discussion with kindness, and stay open to how you can help sustain other businesses, as well as your own. It’s a difficult time to be a landlord, so they may stick to their guns. That said, if you’re a landlord, take advantage of available funding and consider renegotiating with mortgage lenders or banks. 

If you’re fortunate to be sustaining a profit, take advantage of your position. Purchase competitors or supplies at a discount, for example, which supports your business and others.

5. Check your state’s laws.

Some areas have implemented “eviction moratoriums,” where it’s illegal to evict tenants, but this is on a county-by-county or state-by-state basis. Some states, such as California, also have common law provisions that excuse you from a contract if it’s impossible or impractical to perform your obligations. 

The burden is on you to show that you cannot afford to do so without extraordinary cost to your business. This is easy to prove if it’s illegal or against public policy to fulfill your contract. An event planner, for example, cannot fulfill their contract with a venue because large gatherings are not allowed.

6. Breach your contract, if you must. 

While it isn’t ideal, another option is to breach your contract and suffer the consequences later. While a lawsuit can be filed against you electronically, courthouses are closed for at least 60 days. Thanks to an increasing backlog, the hearing won’t happen for months — or years. 

In a good year, it takes 18 months to go to trial. If needed, you can breach your contract for that long and hope to work with the other party or settle in court later.

7. Don’t wait.

The bottom line is: You need a business to return to when things go back to normal. Doing nothing is not an option. Otherwise, you’ll continue sending money out the door when none is coming in. 

Start by reviewing your legal documents, communicating with the other parties and analyzing whether you can mitigate the situation or fulfill your obligations. Then prioritize your expenses based on what’s most important.

Despite the circumstances, I’m optimistic about the future.