Force Majeure in Leases
Force majeure clauses were on everybody's minds during Covid 19 and the effect that they've had on businesses being able to generate revenue to pay rent.
So everybody's looking at their lease to try to find out, does your force majeure clause get the tenants out of paying rent or reduce it?
Here's the answer. You have to look at the language itself, because force majeure is not boiler plate and it ranges. Every lease is different.
Once you look at the language, then you can determine if the force majeure shifts the risk of acts of God, like a pandemic, to the landlord, or does it shift it to the tenant. It will be one or the other, or maybe something in the middle. That specific language is what everybody has to work with.
For example, a client who is a psychiatrist had a force majeure clause in her lease the completely shifted to the landlord the risk of pandemic. So she was able to get out of her lease all together and then go to a home practice.
By contrast, there are many leases, both residential and commercial, where the tenant bears the risk. Under those leases, the landlord can then kick out the tenant, and the tenant really will not have a defense.
However, there is a backup argument which is based on frustration of purpose. This is an equitable doctrine that says: If the purpose for which I entered into my lease has been frustrated, then I don't have to pay rent, or maybe not pay as much rent.
That has worked for some restaurants in a bankruptcy court setting where the court held, for example, that the tenant only owed 25% of their rent because their revenue was cut to 25% based on the Covid-19 pandemic, that 25% being take-out business.
So all is not lost if you're a tenant, and you should also be aware of these various doctrines if you're a landlord, because the tenants will be arguing them, and they might succeed if they go to court.
DISCLAIMER: This article does not constitute legal advice.
Please contact your attorney to discuss how to draft and enforce force majeure provisions in leases.
Diane Wolfson is the managing partner of Sphere Law Firm. She specializes in real estate, business and commercial litigation.