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Force majeure clauses and public health concerns

| Mar 23, 2020 | Uncategorized |

The world seemingly changes every minute as a result of the impact of the deadly coronavirus. Everyday life is on hold as communities struggle to get the virus under control. Due to quarantines and social distancing, many businesses have had to adapt in order to retain some sense of normalcy in these trying circumstances. The constant changes have made it difficult for small business owners to know how to best protect themselves in the event of such a widespread pandemic.

Most small business owners have signed leases that detail their obligations in regards to the property or building where their business is located. The financial impact of the virus may make it difficult to make ends meet, and owners may need to know about their options when dealing with their landlords on matters of concern. When reviewing their lease, they may notice a force majeure clause, which excuses performance in the matter of unexpected events. But what does this mean? And how can this protect tenants in the face of a global health event such as this?

What typically falls under force majeure clauses in commercial lease agreements?

In many cases, the clause that typically appears in a lease is boilerplate language – that is, there really is no clear breakdown of what it does or does not mean. Both tenants and landlords overlook this clause and worry about what they perceive to be more pressing matters. Often, the boilerplate terms call for the continued payment of rent on the part of the tenant, but allow for excused non-performance of other obligations if something beyond the control of the parties is the reason for non-performance.

So, what typically might be an obligation that’s impacted by a force majeure provision? As an example, let’s consider a tenant in a strip mall. As one of maybe 5-10 tenants, this individual’s main responsibility is most likely to pay rent on time. Other obligations often concern the tenant’s responsibility to report items in need of repair, while a landlord needs to keep up common areas or quickly fix any damages when notified by the tenant.

In cases where a state or local government orders businesses to close due to a public health concern, these obligations could potentially fall under the force majeure clause, depending upon the terms contained in the agreement. That is, tenants may not be able to notify landlords of certain problems, and landlords may not be able to repair problems as soon as possible. Despite being in “breach” of the lease, the nonperformance is excused because it is complete outside of the control of the parties.

What this means for you as a commercial tenant

This is when it will be really important to know what is in your lease. If you did not work with an attorney prior to signing your lease, you may be unprotected in the event that a closure impacts your business. Be sure that in any future agreements you enter into that the force majeure language is clear, concise and spells out the specifics as to when it applies. Being proactive can help you avoid unnecessary litigation over nonperformance due to unforeseen circumstances.