Arizona COVID-19 Legal Issues and Considerations

The coronavirus or COVID-19 crisis has raised unexpected questions for lawyers, especially about landlord and tenant and contract matters. The situation is fluid in Arizona, with the Governor issuing Executive Orders on an almost daily basis, so check this space regularly for changes and updates. But here are some key issues and what we know about them now.

Residential Evictions During the Covid-19 Crisis in Arizona

Governor Ducey issued Executive Order 2020-14, “Postponement of Eviction Actions,” but the title is misleading. The Order does not postpone eviction actions; rather, it provides tenants in certain situations related to COVID-19 with a means to delay their actual removal from the property they are renting. To invoke EO 2020-14, however, the tenant must make an application to the landlord in writing with supporting documentation and also acknowledge that the contractual obligations of the lease remain in effect.

What this means is that if a tenant meets certain criteria, and tells the landlord so in writing before the eviction, then the court will render a judgment against them, but the Constable will not be required physically to remove them from the property five days after court when the Writ of Restitution normally issues. The criteria for a tenant making an application under the Order are broad:

  1. The individual is required to be quarantined based on their diagnosis of COVID-19.
  2. The individual is ordered by a licensed medical professional to self-quarantine based on their demonstration of symptoms as defined by the Centers for Disease Control and Prevention.
  3. The individual is required to be quarantined based on someone in the home being diagnosed with COVID-19.
  4. The individual demonstrates that they have a health condition, as defined by the Centers for Disease Control and Prevention, that makes them more at risk for COVID-19 than the average person.
  5. The individual suffered a substantial loss of income resulting from COVID-19, including:
  6. Job loss;
  7. Reduction in compensation;
  8. Closure of place of employment;
  9. Obligation to be absent from work to care for a home-bound school-age child; or
  10. Other pertinent circumstances.

As stated, the Order also requires the tenant to acknowledge the terms of the lease and does not relieve them of the obligation to pay rent or otherwise comply with the lease.

BOTTOM LINE. Landlords should go forward with residential evictions but should expect that any tenant stating they are impacted by COVID-19 will receive relief from the writ of restitution and will not be physically removed from the property until further notice. Please call me, Adam Weisman, at (520) 881-6607 or (520) 271-4266 to discuss your case.

Commercial Evictions During the Covid-19 Crisis in Arizona

Here, the burden is on the landlord, not the Constable, because most commercial evictions start with “lockouts,” not court actions. Executive Order 2020-21 makes it clear that any commercial tenant seeking COVID-19 related relief from a landlord should receive it if they are experiencing “financial hardship.” Since everyone is experiencing “financial hardship,” this is Governor Ducey’s order to stop commercial evictions for the time being.

Again, the Order requires notification to the landlord by the tenant in writing with supporting documentation, but since the Order effectively bars commercial evictions through May 31, 2020, it makes sense for landlords simply to get in touch with tenants to see if a plan for payment of some portion of the rent can be worked out. If not, the landlord really has no recourse but to wait until the end of May to assess and discuss the future of the commercial tenancy. The Order also encourages landlords to waive late fees and to discuss rent payment plans with tenants, but this is just good business sense anyway.

What the Order does not do is explain how landlords will pay their mortgages with no rent coming in. However, the Order does encourage commercial lenders to provide forbearance to landlords whose tenants are not currently able to pay rent.

BOTTOM LINE. If your commercial tenant can’t pay, don’t lock them out. If you have a mortgage you cannot pay, get written documentation from the tenant of their hardship (help them write it, if necessary) so that you can present that to your lender as you seek forbearance. Please call me, Adam Weisman, at (520) 881-6607 or (520) 271-4266 to discuss your case.

Home Purchase Contracts During the Covid-19 Crisis in Arizona

Many buyers who contracted to purchase homes prior to the COVID-19 crisis are now wondering if they can cancel those contracts and get back their earnest money. The answer is usually no, but it depends upon where you are in the timeline of the sale. If your transaction used a standard Arizona Realtors form, look first at Sec. 6.a, which begins at line 213. This section defines your Inspection Period, which is ten days unless otherwise specified. If you are still within your Inspection Period, then you can cancel the contract based on Sec. 6.j at line 264. To cancel, you must provide written notice to the seller of the items of the house you are disapproving and demand return of your earnest money. It is also good practice to copy this letter to the escrow company handling the closing.

If the Inspection Period has run, which it probably has by now, but you have still not closed, you can still cancel the contract, but this will constitute a breach under Sec. 7.b of the contract at line 315. This means that you will certainly forfeit your earnest money to the seller, but you will probably not face any other penalties. I say “probably,” because the Arizona Realtors contract is wishy-washy on this point. It states that if the buyer breaches, the seller “may, at Seller’s option, accept the Earnest Money as Seller’s sole right to damages….”

Note the use of the word “may.” According to the contract, the Seller could waive the earnest money as its damages and sue the buyer for some other and greater calculation of its damages, but this is a very rare scenario in Arizona and the courts have the last word. The leading Arizona case on the subject of earnest money—what lawyers call “liquidated damages”—is not favorable to sellers suing buyers who have plunked down earnest money and are willing for forfeit that money in breaching the contract.

But what about the fact that even if the buyer gets your earnest money, which may be as little as $5,000, she is still stuck with her house? doesn’t that give the buyer leverage to re-negotiate the closing date or terms of the contract? After all the COVID-19 affects the economic situation of sellers as well as buyers. The answer is yes, and there are some good strategies a wary buyer can use to encourage reasonable re-negotiation of residential sales contracts where the inspection period has run, but the sale has not yet closed.

Force Majeure During the Covid-19 Crisis in Arizona Contracts

One thing the COVID-19 crisis has done is taught a lot of people how to speak French—at least enough French to say “force majeure.” Force majeure is a legal principle that says certain contracts can be voided or temporarily suspended because of the unexpected intervention of a superior force—what some call “an act of God.”

Since the COVID-19 crisis, many have asked me if the pandemic qualifies as a force majeure and it certainly does by most legal definitions of force majeure. That’s the easy part. The hard part is the second question: Can I use force majeure to get out of a contract to buy a house that I contracted for prior to the crisis? The answer, if you are using a standard Arizona Realtors form, is no. Why? Because the form does not include a force majeure clause. The form states at Sec. 8.b, line 390, that the risk of loss is primarily on the seller if the home is destroyed before the sale, but it doesn’t say anything about the buyer being unable to perform because of force majeure.

The problem is that force majeure is a contract principle and it needs to be written into the contract in order to be part of the transaction. There is another legal concept, called “commercial frustration,” that does not have to be part of the contract to be invoked, but commercial frustration is generally hard to invoke and prove. The leading case in Arizona says that performance of the contract has to be “impossible,” not just really difficult or unpleasant. Commercial frustration is an unlikely way out of a contract where, for example, you simply do not want to go through with the purchase because you have lost your job due to COVID-19 and are unsure how you would pay your mortgage. In that case, you will likely have to breach the contract and forfeit your earnest money if you want to avoid going through with the closing.