COVID-19 & the Force Majeure Clause in Leases

What You’ll Learn from the Article:

• The definition and implications of the force majeure clause in commercial leases.
• Whether COVID-19 qualifies as a force majeure event and how that depends on lease language.
• The importance of consulting legal experts to interpret your lease's force majeure clause.
• How landlords may be willing to negotiate rent or lease terms during the COVID-19 crisis.
• The role of tenant representatives in navigating lease challenges during the pandemic.

With COVID-19 in full bloom across the United States, companies are closed down, revenues are at risk, and the economy is temporarily going through a decline that makes 2008 and even 1929 look like a small interruption. For many businesses, this is worse than anything they've ever seen -- even a natural disaster. Purchases are getting canceled. Plans are delayed. Employees are furloughed. But the rent is still due on the first of the month. Right?

The answer to that question isn't as straightforward as it might seem.  To understand why things are so different in this time of COVID-19, two French words come into play: force majeure.

Force Majeure

Literally translated, force majeure means superior force. The concept refers to something happening that is gigantic and beyond the control of the parties. Acts of God fall into this camp as do certain large human-caused events like wars.  The impact of force majeure is this: if something happens that makes it impossible to act on a contract, the parties don't have to follow the contract.  If a flash flood wipes out Coachella the day before the festival, the organizers don't have to hold it.

All of this being said, COVID-19 isn't a flash flood, and the law around force majeure is complicated. While we'll give you a general understanding of the underlying business concepts here, it's important that you carefully read your lease and that you talk to your attorney.  Your rights vary based on the language in your lease, your state's laws, and based on court cases that are currently filed and likely to be filed during this crisis.'

Is COVID-19 a Force Majeure Event?

As with many things in business, the correct answer is: maybe.  On one hand, this is clearly a unique event with devastating consequences. On the other hand, as we said above, this isn't an earthquake. Your building is still standing. Many tenants are probably doing business in it right now. 

While this is one of those areas where it's important to talk to your attorney, some courts have interpreted force majeure claims based on the language of the clause. Does your lease define a pandemic as force majeure? If not, then COVID-19 may not trigger the clause. Furthermore, even if it is a force majeure event, is it strong enough to justify you not paying rent or canceling your lease, or is it just enough to prevent you from being in hot water with your landlord by violating the continuous operation language in your lease?

Again, the answers to these questions come from the language of your lease. And, if your lease is anything other than cut and dry, the real answers come from an attorney and, potentially, from the courts.

Does Force Majeure Matter?

This might seem a bit bleak if you're struggling to pay your rent, but there's another reality in play here. Whether or not COVID-19 triggers the force majeure clause in your lease, you're struggling, and your landlord knows it. As you try to figure out how to keep your business operating with employees scattered all over the place, processes interrupted, and revenues temporarily plummeting, the ownership group of your building is in a similar situation. They're trying to figure out how to keep their building afloat when tenants can't pay rent. Smart ones are also afraid that they could end up losing businesses that have always been good tenants and that they could end up having to spend thousands or millions of dollars to find new ones after losing scads of money on vacancy.

Talk to your CPA. Talk to your attorney. Then reach out to your landlord. You might find that they are willing to work with you to come up with a plan to help bridge this gap.

Even better, reach out to us at iOptimize Realty®. As expert tenant representatives, we can help you understand your options. We can also talk to your landlord on your behalf to help them see the long-term benefit of working with you to get through this short-term crisis -- whether or not you invoke your force majeure crisis.