ALERT: Force Majeure and Commercial Leases

Lyons Gaddis COVID-19 Alert

This Alert is one in a collection of articles created by Lyons Gaddis in our effort to get important information to our clients regarding the effect of the novel coronavirus (COVID-19) outbreak in the United States.  This Alert focuses on landlords and tenants who are dealing with closures and other challenges in response to recommended or mandated social distancing measures in the wake of the spreading coronavirus

March 23, 2020
ALERT: Force Majeure and Commercial Leases
by Suzan Fritchel, Special Counsel

Almost all commercial leases contain a “force majeure” provision that relieves the parties from performing their contractual obligations if an unforeseeable event prevents such performance.  However, the “force majeure” clause is seldom focused on during the negotiation of a commercial lease – usually relegated to the “Miscellaneous” section on the last page. 

The standard force majeure clause provides:

Neither party shall be required to perform any term, covenant, or condition of this Lease so long as the performance is delayed or prevented by “Force Majeure Events” constituting any acts of God, strike, lockout, material or labor shortage or restriction, civil riot, enemy action, war, acts of terrorism, civil commotion, moratorium, actions of a Governing Authority, and any other cause not reasonably within the control of the party and which by the exercise of due diligence the party is unable, wholly or in part, to prevent or overcome.  Notwithstanding the foregoing, the provisions of this Section shall not be deemed to preclude the Tenant’s obligations in the payment of Base Rent, Additional Rent or any other charges or obligations under the Lease as those rental obligations become due and payable by Tenant.  The occurrence of a Force Majeure Event will extend day-to-day the relevant date in question but only if, within 10 business days after the end of the event causing the delay, the party seeking the delay notices the other party in writing of the nature of the cause for the delay and the actual extension requested.

A declaration of a national emergency or the declaration of a world-wide pandemic could arguably fit within the language above, however, the courts have historically interpreted this term very narrowly.  Typically, the court will require that the event in question be specifically set forth in the clause – in this case, “pandemic” or “declaration of national emergency”.  But these are not “typical” times and it is reasonable to expect that there will be an evolving shift regarding the interpretation of “force majeure”.

In addition, while the obligation to pay rent is not abated but are reaffirmed and just delayed in these force majeure clauses, other provisions in a commercial lease such as the obligation to continue to operate the business or the maintenance obligations may be deemed impossible by a state ordered shut-down and therefore may not be used by a landlord seeking to either hold the tenant in default or collect on same.

Now, as businesses close due to the on-going COVID-19 crisis, both landlords and tenants should be reviewing their leases for guidance with their legal counsel to determine their respective rights going forward.

Attorneys in the Real Estate Group at Lyons Gaddis are available to advise you in relation to these loan programs and other COVID-19 related matters impacting your current and future business operations.