Anyone having success in getting rent abatement from the “Force majuere” clause in your lease? I have asked my LL for a rent break based on that clause and I’m waiting to hear back. Curious about what you guys are doing.
Also- what about putting in a claim on your business interruption insurance? I am waiting back on the claim I put in. Will keep in touch.Thanks. Bob at DC Pizza
Please read below:
Over the past 24 hours we’ve continued to learn more about the Coronavirus and its devastating impact on many entrepreneurs. As our members come together, we are also picking up new resources on how to weather the storm. Here’s the latest:
Reducing Rent Expenses: Many entrepreneurs are beginning to think about how to control rent costs.
It’s also worth checking out the force majeure provisions in your lease. Some experts are saying that exemption from rent under this clause is unlikely.
but others say that there is an outside chance of getting relief under this provision (. Some of our members are beginning to negotiate with their landlords to get rent holidays and/or reductions.
Coronavirus and Commercial Real Estate Leases
USA March 18 2020
This Alert is part one in a series of articles intended to examine the effect of the novel coronavirus (COVID-19) outbreak in the United States and its effect on commercial real estate assets whose tenant occupants are experiencing complete or partial shutdown of their business operations resulting from the preventative social distancing measures imposed in the wake of the wide-spread infectious disease and owners who are temporarily closing buildings. Commercial landlords and tenants alike should review their lease documents and, if necessary, seek legal advice to determine their rights and obligations based on the particular circumstances of the suspension in use of the space. Please note this Alert is not intended to apply to properties containing residential leases. We will be providing a separate analysis of the ramifications of the COVID-19 pandemic with respect to both construction agreements and financing documents for real property.
Force Majeure Lease Clauses
Force majeure clauses in leases address events that are beyond the parties’ control, such as the outbreak of war, natural disasters, or other acts of God. The clauses typically provide that, to the extent the force majeure event renders performance impossible or results in a delay in performance, the affected party’s obligations to perform under a particular lease may be excused or suspended.
Is Coronavirus a Force Majeure Event?
One must examine the force majeure clause to determine if the COVID-19 outbreak qualifies as a force majeure event. Generally speaking, courts of most jurisdictions have historically interpreted force majeure clauses narrowly and will only excuse performance if the force majeure clause specifies the event that actually prevents a party’s performance. Does the definition of force majeure expressly include words “pandemic,” “epidemic,” “disease,” “public health emergency,” or other similar language? If such language is present, the COVID-19 outbreak is likely to constitute a force majeure event. In the absence of such language, the force majeure clause is not likely to be interpreted to cover the COVID-19 outbreak.
Is a Government Imposed Shutdown a Force Majeure Event?
If a space has been involuntarily shut down by mandatory governmental order, as we are seeing in many areas in response to the COVID-19 outbreak, a similar examination of the force majeure provision must be made to determine if such act qualifies as a force majeure event. Typically, “governmental restriction,” “regulation,” or similar phrases are included within a standard force majeure lease provision and constitute force majeure events.
Effects of Such Force Majeure Events
If these events qualify as force majeure events under a lease, a landlord’s obligation to provide access to the leased premises would be suspended during such applicable period, and the inability of a tenant to gain access would not be construed as a constructive eviction. These events would also likely result in a suspension of a tenant’s obligation to continuously operate its premises, as well as the obligations of both the landlord and tenant to maintain and perform repairs to the premises. Note that the events for which relief is provided tend to be obligations relating to performance, not payment. (Note also, that even if these events do not qualify as force majeure events under a lease, a party may be excused from performance pursuant to other provisions in the lease. For example, a tenant who shuts down its operations in response to a government directive would likely be viewed as complying with a requirement under the lease to conduct its business in compliance with applicable laws.)
The coronavirus is causing a true Friday the 13th nightmare for many in the retail industry today. On March 12, 2020, the country began ardently practicing social distancing and self-quarantining to a degree never seen before, and many shopping center landlords and retail tenants are immediately facing an uncertain future.
The coronavirus-related question the AGG retail industry team is getting most often today is whether force majeure (“superior force”) or “Act of God” clauses justify tenants’ suspension of performance of their duties under their leases (primarily operating and paying rent). The answer depends on the specific contract language, local law, and the causal connection between the pandemic and the particular tenant’s inability to meet its lease obligations. Commercial landlords and tenants alike need to understand the application of these rarely invoked clauses.
Black’s Law Dictionary explains that a force majeure clause, “is meant to protect the parties in the event that a contract cannot be performed due to causes which are outside the control of the parties and could not be avoided by exercise of due care.” Force majeure clauses allocate risk between the parties when an unanticipated event makes performance impossible or impracticable.
While state laws vary, every jurisdiction respects parties right to contract. So, disputes over application of force majeure clauses start with the specific language used in the lease. A force majeure lease clause may contain a list of specific events which constitute a force majeure , it may be more vague to include anything out of the parties’ control, or, the clause may define specific events and then include broad “catch-all” language such as, “for other reason whether of a like nature or not that is beyond the control of the party affected.” Generally speaking, the more specific the clause, the more limited application it has – if the actual occurrence is not on a long list of specific events, it is not likely a force majeure . Most clauses specify that they are only invoked when performance becomes impossible; some have more liberal language requiring only the hindrance or delay of performance.
As it pertains to the coronavirus, any broad force majeure clause language should apply since March 11, when the World Health Organization declared it a pandemic. It is unlikely any court would decide that any tenant caused the coronavirus. And, many force majeure clauses specifically include “epidemic” or “pandemic” in its laundry list of qualifying events. Even without that specific reference, the coronavirus should qualify under most force majeure clauses due to the government imposed travel bans and quarantines.
Tenants could have trouble proving its damages if business was already down. Most courts require the party claiming force majeure to show that the event was not foreseeable and directly caused the failure to meet its contractual obligations. While this is often a close call in weather-related natural disasters – the geographic scope and actual impact on the stream of commerce of a storm is often debatable – a pandemic resulting in mass closures of all public events and schools should not be a close call. This is not a normal risk of doing business.
As in any lease matter, strict compliance with the technical requirements of the lease may be necessary for a tenant to invoke a force majeure clause. Typically a lease requires prompt notice of a claim of force majeure . Several courts have refused tenants’ force majeure claims when they failed to provide adequate notice under the lease.
One common, and particularly controversial clause in a situation such as the one we are in today, is found in the last line in the above example at footnote one: “Nothing in this Section, however, shall excuse Tenant from the prompt payment of any Rent or the obligation to open for business on the Commencement Date.” The intention of the parties appears to be that a tenant may be excused by a force majeure of complying with a continuous operation clause in the event of a pandemic, but it still must pay rent. Under the current circumstances, one could make an argument that these clauses are unenforceable because they are unconscionable and against public policy.
Finally, landlords could also seize this opportunity to use force majeure clauses proactively. Landlords may claim force majeure clauses excuse co-tenancy requirements and other obligations to its tenants. Landlords could argue that force majeure requires it to breach an exclusive so it can lease to a competitor of an existing tenant so as to ensure revenue stream.
Questions regarding force majeure clauses are one of many issues that arise during challenging times for the retail industry, but with vigilant adherence to their contracts and applicable law, landlords and tenants can navigate these troubled waters successfully.
Footnotes for this alert are available in the formatted PDF accessible below.