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The New Frontier of Force Majeure Clauses with COVID-19

Author: Craig Galanter

Contributing Editor: Blaire Farine

COVID-19 has created a tsunami of issues across the globe – not just in human health, but also in the real estate and business world. Force majeure is one lease/contract provision that could help free a non-performing party from an obligation.

What is Force Majeure?

Force majeure is a provision commonly found in contracts/leases that frees both parties from obligation if an extraordinary event prevents one or both parties from performing. These events must be unforeseeable and unavoidable, and not the result of the defendant’s action. These events are commonly known as “an act of god” or a “supernatural act.”

It is also important to note that typical force majeure provisions do not allow for non-payment of rent. Force majeure can suspend other lease/contract obligations such as performance dates and construction timelines.

What events are usually covered under a Force Majeure provision?

Typically, most force majeure provisions are boiler plate, which contain open-ended or catch-all language:

  • Natural disasters such as floods, earthquakes and severe weather events.
  • Violence such as war, hostilities, terrorist acts and civil unrest.
  • Government action.
  • Organized labor activities.

Are Pandemics, Epidemics and Quarantine covered under a Force Majeure Provision?

Pandemics, epidemics and quarantine are usually not listed as a triggering factor to enact a force majeure provision. But there is hope for those affected by COVID-19. A pandemic and quarantine usually lead to governmental action or regulation and in most force majeure provisions, this qualifies as a triggering mechanism. However, just because there is governmental action does not mean every force majeure provision can be used. In order to invoke a force majeure provision, there must be a causal link between the force majeure event and the affected party’s failure to perform.

Additionally, some force majeure provisions contain language which can broadly be interpreted to cover pandemics, epidemics and quarantines. This language usually looks like, “any other causes of any kind whatsoever which are beyond the reasonable control of such party.”

COVID-19 qualifies as a Pandemic

The Centers for Disease Control and Prevention defines pandemic as a global outbreak of disease. On March 11, 2020, the COVID-19 outbreak was characterized as a pandemic by the World Health Organization.

As of April 3, 2020, all but four states have enacted governmental regulation to close all nonessential businesses from operating. This governmental regulation and authority should trigger the force majeure provision of your lease/contract.

What if my Lease/Contract is Silent on Force Majeure?

If the contract/lease is silent on force majeure, a court renders its decision whether to excuse an impacted party’s performance during the force majeure event based on the foreseeability of the event.

Additionally, other doctrines may help in excusing performance. Specifically, frustration of purpose and impracticability. These should be considered if there is no force majeure provision in your lease or contract. For more information about frustration of purpose, please see the link following this article.

Moving Forward can a Force Majeure Provision be Negotiated?

Yes. A force majeure provision can and should be negotiated. In most cases, the parties agree to limit the force majeure events to those events that are outside of the control of the impacted party. In some cases, the parties go beyond negotiating a finite list of force majeure events and negotiate express force majeure exclusions.

Please note that nothing in this article is intended to be, or should be construed as, legal advice. Moreover, the information discussed above is not an exhaustive list of items to consider when dealing with a commercial lease or contract. Every commercial lease/contract situation demands a skillful review with an experienced commercial real estate attorney. You may contact the above-referenced attorneys to discuss your matter further and best determine how to proceed with any potential commercial lease/contract problem you may currently be experiencing.

For more information about frustration of purpose, please click here.

For more information about COVID-19 and its characterization as a pandemic, please click here.

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