Series: Real Estate in the Time of Covid Part Two
What is the Force Majeure Clause?
A Force Majeure clause is a clause found in the “boilerplate” section of most business agreements, including real estate leases.
While most people assume the boilerplate provisions are not important or worthy of negotiation, they are in fact quite important and fundamental to most deals.
Depending on how the Force Majeure clause is written, it could allow a landlord or tenant to excuse or suspend certain obligations or even terminate the lease due to certain circumstances beyond their reasonable control.
Courts have held that for Force Majeure clauses to excuse performance, the situations they seek to protect against have to be:
Specific (expressly written); or
Unforeseeable
For a lease to be specific enough with regard to COVID, we are looking for words like “disease,” “epidemic,” “pandemic,” “quarantine,” “government-mandated shut-down,” “stay-at-home orders,” and other similar language. If no such language exists, then we look to any general catch-all language like “any other similar cause,” etc.
Here is an example of a Force Majeure clause that specifically contemplates government restrictions:
“If the performance by a party of any provision of this Contract is delayed or prevented by i) an act of God such as weather or earthquake; ii) an act of war or terrorism; or iii) restriction by any governmental authority, then the period for the party’s performance of the provision shall be automatically extended for the same amount of time that the party is so delayed or hindered.”
Many Force Majeure clauses do not contain this language and in most leases, landlords and their counsel would not accept such an open-ended excuse from performance. In fact, most Force Majeure clauses are designed to excuse all kinds of performance under the lease except a Tenant’s obligation to pay rent.
With Force Majeure clauses, the courts do not try to read too far into it and take the language for what it means.
Without specificity, the courts will look to the foreseeability of the Force Majeure event.
While weather, diseases, and economic downturns are often common and foreseeable, in cases of extreme or highly unusual weather (like temperatures in the teens for days on end in Texas), diseases (like COVID-19), or economic conditions, it can be argued that they could not be reasonably expected and foreseen and thus should excuse or delay performance.
If the Force Majeure clause doesn’t do it, as a last resort, crafty lawyers can try to use the casualty or condemnation/eminent domain provisions and other legal theories like impossibility, impracticability, or frustration of purpose to create arguments for their clients.
Stay tuned for Series Part Three next month where we will discuss the specifics of what happens when a tenant stops making payments.