Are Your Contracts Illegal?
When entering into contracts, businesses want to make sure that the terms and provisions are airtight, so that the business can properly anticipate future revenue and hold others to the obligations that they agree to be bound to.
Many contracts are longer term, and can last for a term of years. But as time changes, so do circumstances. The environment that existed when an agreement was first signed can change dramatically as time goes on, and those changes can sometimes serve as a basis for a party getting out of an agreement.
From Legal to Illegal
One such change that can allow a party to back out of a contract is whether the contract deals with an industry or action that is or may be illegal. Courts can’t enforce a contract that deals with illegal activity.
Certainly, most of us don’t intentionally enter into agreements to provide illegal goods or services. But in many cases, industries that start out legal can end up illegal (or at least heavily regulated) as time goes on.
There are many such examples. The popular e-cigarettes (sometimes called “vaping”) began largely unregulated, but, although never made illegal, as time went on, became very heavily regulated. During the economic meltdown, debt settlement and mortgage relief companies found themselves more regulated than they ever had been.
Liquor laws can change—one day it may be legal to serve alcohol in a given establishment and the next day that may change. Zoning may allow a business to be open until a certain hour today, but make it illegal to stay open that late later on.
Recent Case Involves Law Change
A recent case dealt with just this scenario. A tenant with a business that dealt in online gambling (computerized slot machines) signed a long-term lease. The lease only allowed online gambling, not coin-operated machines.
Sure enough in 2013, Florida law made such computerized gaming illegal, unless inside a designated casino. Thus, the business closed its doors. When the landlord sued, the tenant defended by saying that its lease had become unenforceable because it was illegal—that is, it now dealt with an activity that had been made illegal, and thus, no court could enforce it.
The landlord countered that the business could have transformed itself into a legal business by becoming a traditional, coin operated, family-style arcade. But the lease specifically prohibited that kind of activity. Thus, the Court held because the only activity permitted under the lease had been made illegal, the tenant could legally break free from the lease without liability.
The landlord here may have been saved had the lease been a bit more broad, allowing the tenant to engage in additional activities. The lesson is that sometimes it helps to have some broadness in contracts and agreements, especially in heavily regulated industries. Leaving the other side room to do business, exercise options, or make money in different ways can benefit your business by making your agreements more enforceable.
Don’t leave your business agreements to chance. Contact Tampa business attorney David Toback to discuss your business agreements and business planning.