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Force Majeure & the COVID-19 Pandemic

Posted by Arnold A. Arpino | May 07, 2020 | 0 Comments

Force Majeure: What is it?

A Force Majeure Clause also known as force majeure is a provision in an agreement that excuses a party's performance if its failure to perform is due to certain extreme circumstances outside that party's control, for example, due to the occurrence of a natural disaster or an act of terrorism or war, or a public health emergency.
 
For example, in commercial leases it is common to include a force majeure clause. It is rare in residential leases. A Force Majeure Clause may state that during a a natural disaster, the tenants or landlords obligations are suspended for a period of time.
 
Although a force majeure clause can be inserted in any agreement, this article will focus on the relationship between a commercial landlord and commercial tenant.
 

Drafting Considerations

New York Courts have interpreted these provisions narrowly. So it is important when negotiating a lease, to insert very specific language about: (1) what events would trigger the clause; and (2) what happens when the clause is triggered; (3) if you want any notice requirements (letters to be sent between the parties).

If drafting a force majeure clause, avoid the use broad language to account for events that are not specifically mentioned in the clause.  When parties write broad clauses or "catch-all" provisions, the courts are then forced to decide the actual event was foreseeable.

When negotiating a lease, the goals of the tenant are different from the commercial landlord. If you a tenant, you want a clause that broadens the list of possible events that would excuse performance, or the paying of rent. The tenant also would want to limit the landlord's remedy for when performance is excused. Opposite, on the landlord side, you would want to limit the force majeure clause to only include events that are genuinely outside the control of the tenant. The landlord would also want to protect themselves with the ability to terminate the lease agreement if the event goes on for an extended period of time.

Force Majeure and COVID-19

So that leaves us with the question, does a force majeure clause protect a commercial tenant during the pandemic when the government has forced its business to close. Maybe, maybe not. It really depends on how heavily negotiated the force majeure clause was in the lease agreement, what the terms of the agreement are, and what obligations the parties have under the clause.

If a commercial lease has a force majeure clause with a triggering event of a pandemic or epidemic, then COVID-19 is likely to be considered a force majeure event. Also if the force majeure clause includes a government restriction, the New York Governor's mandated closure of non-essential businesses will also be a triggering event.

Whether or not a commercial tenant or landlord will be granted relief under a force majeure clause will require a lease-by-lease analysis. Prior to COVID-19, these clauses were not really heavily negotiated or even thought about. They were just inserted into agreements and both parties would sign off on a force majuere provision without giving it much thought. That will likely change for leases that are renewed, extended, or negotiated now.

Next Steps for Landlords and Tenants

The first thing to do would be to review your commercial lease agreement to determine if there will be a clause that covers your factual circumstances. You will probably want to hire an attorney for this review. You should check if there are any notice requirements (meaning do you have to send letters to the other party). 

Even if your force majeure clause does not include protections from a pandemic like COVID-19, there are still options for landlords and tenants to work through this period. 

If you are a landlord or a commercial tenant who needs assistance interpreting and negotiating a force majeure clause in an existing or new lease agreement, we can help. During the pandemic, contacting us by email is best. 

About the Author

Arnold A. Arpino

Managing Shareholder focusing on Creditor's Rights, Real Estate, & Non-Taxable Estate Planning.

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Arnold A. Arpino & Associates, P.C., is a full service law firm that represents individuals and businesses in a variety of different practice areas. Our firm regularly appears in the Courts throughout Long Island, New York City, and the Hudson Valley.

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