A force majeure clause (FMC) is commonly found in commercial lease agreements. Its name being translated from French as “superior force,” this clause is intended to excuse delays in performance due to unforeseen circumstances.
In practice, at least until recently, most landlords and tenants infrequently experienced cause to invoke force majeure. Maybe an occasional weather delay. So parties and even their lawyers were often guilty of giving scant attention to FMCs, dismissing them as one of those “boilerplate” provisions that gather dust in the back of the lease.
Those days are over. During the COVID-19 pandemic we witnessed nationwide governmental orders that directly mandated or indirectly caused temporary closures of businesses on an unprecedented scale. For the large percentage of businesses that leased their properties, the shutdowns naturally impaired their ability to pay rent. This was a novel situation, and landlords and tenants alike revisited their leases to see how the terms – particularly the FMC, if there was one – addressed their situation.
Over the last year I’ve reviewed many FMCs in reference to this issue. Even though virtually none were written with this pandemic scenario in mind, I’d say their interpretation and application were fairly consistent. On the one hand, these FMCs typically excused a tenant from any obligations to remain open. On the other hand, they typically did not entitle tenants to any rent relief. In fact it’s quite common for FMCs to expressly exclude monetary obligations (such as rent) from the clause’s application.
If you’re a landlord, you like this result. If you’re a tenant, not so much. Given our COVID-19 experience, and the worrisome thought that it could happen again, landlords are considering updates to their FMCs to more squarely address future pandemic scenarios (naturally, in the landlord’s favor). On the other side, tenants are likely to scrutinize FMCs more closely and seek to shift more of the future pandemic risk to the landlord.
For tenants with negotiating leverage, pushback points may include singling out governmental shutdown orders for special treatment, full or partial rent abatement, and even lease termination rights. Time will tell if and how much of these adjustments will become seen as “market.” Meanwhile, landlords and tenants alike should plan on paying close attention to their FMCs going forward.
* This article first appeared in The Journal Record on January 20, 2021, and is reproduced with permission from the publisher.