Pandemic-Resultant-Problems Require Unprecedented Solutions

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n Market Street Associates Limited Partnership v. Frey that the implied covenant:<blockquote id="c55b">“is a stab at approximating the terms the parties would have negotiated had they foreseen the circumstances that have given rise to their dispute.” Good faith, on this approach, is thus just another “way[] of formulating the overriding purpose of contract law, which is to give the parties what they would have stipulated for expressly if at the time of making the contract they had had complete knowledge of the future and the costs of negotiating and adding provisions to the contract had been zero.”</blockquote><blockquote id="5123">Emphasis added as this perfectly describes the COVID situation. Going forward, every lease and mortgage or contract of any kind will have a negotiated clause to deal with a shutdown. Since this situation was for all intents and purposes completely unforeseeable, the parties have to act in good faith to carry out the purposes of the contract The GFFD covenant makes the contract somewhat of a living, breathing document that can adapt to preserve the intent of the contract in unforeseen times; it allows the intent of the contract to function had you known then what you know now, not only about the market, but also the world.</blockquote>So, now I specifically posit that the covenant requires that rents be reset to fair market value. It is not rational for landlords to be putting restaurants and retail stores out of business unless the spaces can be re-rented to others. If there are businesses in the market for the spaces, they

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will pay market rent, not the previous tenants’ lease rents. Every lawyer knows how to conduct a fair-market-value rent reset — there are standard clauses for such procedures. The implied covenant mandates that such clauses be implied as in the existing leases where the tenants cannot afford the lease rents because of the pandemic.If the landlords would not be able to afford their mortgages at market rents, the implied covenant mandates that the loan terms be modified accordingly.Businesses that have already failed, or will fail, as a result of the pandemic, no matter what size, should receive a check from the government for the fair market value thereof as of 12/31/19, with a share going to the employees. One set of investment banks should be designated as business-advocates, another set program advocates, another set employee advocates and a final set as arbiters. If the advocates cannot agree on the size of the checks, then they state their positions to an arbiter based on the rules generally known as baseball-arbitration (no splutting the baby — the arbiter has to choose one parties position — this encourages the parties to stake-out reasonable positions).The bankers should be paid fees by the government that are NOT outcome based. This should encorage honest and hard work on every case.Eight months percolating in my subconscious. My reward for waiting patiently till my inner-voice told me the article is ready — less than an hour of transferrence-time. Merry christmas tree brain!YG</article></body>

The case for mandating immediate fair-market-value rent resets and a federally funded business-failure insurance program

The split-screens in my christmas tree brain have been writing this article since April. Today, culminating with knowing that Political Sense would be the right home, my mind finished wrtiting and my fingers started typing.

In April I posited that the implied contractual covenant of good faith and fair dealing be used to save covid-19 impaired contracts and businesses. I later published that here — my first ever foray on medium.com.

My idea then was very general, and based upon the thoughts of legal scholars of the highest esteem. As I wrote, Judge Richard Posner of the 7th Circuit Court of Appeals articulated in Market Street Associates Limited Partnership v. Frey that the implied covenant:

“is a stab at approximating the terms the parties would have negotiated had they foreseen the circumstances that have given rise to their dispute.” Good faith, on this approach, is thus just another “way[] of formulating the overriding purpose of contract law, which is to give the parties what they would have stipulated for expressly if at the time of making the contract they had had complete knowledge of the future and the costs of negotiating and adding provisions to the contract had been zero.”

Emphasis added as this perfectly describes the COVID situation. Going forward, every lease and mortgage or contract of any kind will have a negotiated clause to deal with a shutdown. Since this situation was for all intents and purposes completely unforeseeable, the parties have to act in good faith to carry out the purposes of the contract The GFFD covenant makes the contract somewhat of a living, breathing document that can adapt to preserve the intent of the contract in unforeseen times; it allows the intent of the contract to function had you known then what you know now, not only about the market, but also the world.

So, now I specifically posit that the covenant requires that rents be reset to fair market value. It is not rational for landlords to be putting restaurants and retail stores out of business unless the spaces can be re-rented to others. If there are businesses in the market for the spaces, they will pay market rent, not the previous tenants’ lease rents. Every lawyer knows how to conduct a fair-market-value rent reset — there are standard clauses for such procedures. The implied covenant mandates that such clauses be implied as in the existing leases where the tenants cannot afford the lease rents because of the pandemic.

If the landlords would not be able to afford their mortgages at market rents, the implied covenant mandates that the loan terms be modified accordingly.

Businesses that have already failed, or will fail, as a result of the pandemic, no matter what size, should receive a check from the government for the fair market value thereof as of 12/31/19, with a share going to the employees. One set of investment banks should be designated as business-advocates, another set program advocates, another set employee advocates and a final set as arbiters. If the advocates cannot agree on the size of the checks, then they state their positions to an arbiter based on the rules generally known as baseball-arbitration (no splutting the baby — the arbiter has to choose one parties position — this encourages the parties to stake-out reasonable positions).

The bankers should be paid fees by the government that are NOT outcome based. This should encorage honest and hard work on every case.

Eight months percolating in my subconscious. My reward for waiting patiently till my inner-voice told me the article is ready — less than an hour of transferrence-time. Merry christmas tree brain!