Coronavirus And Force Majeure Clauses In Commercial Leases
As any Seattle-based business knows, rent is not cheap here. While businesses in some industries can operate without a brick-and-mortar space, others—like bars, restaurants, gyms, yoga studios, and many more—don’t have the same luxury. For those businesses with commercial leases, whether in Seattle or elsewhere in Washington, the arrival of the Coronavirus and the ensuing statewide shutdowns have created a lot of uncertainty and fear—understandably so—about the ability to continue making rent in the months to come.
Businesses are now starting to assess in earnest their lease obligations, including whether the impact of the coronavirus could provide a means for reducing their obligations (for instance, through rent abatement) or eliminating them entirely.
One lease provision for businesses to keep an eye out for is a Force Majeure clause (sometimes also referred to as an “Act of God” clause). When included in a commercial lease, these types of clauses typically allow for delay or suspension of performance obligations by the landlord and/or the tenant due to unforeseeable events identified in the contract. These types of events are usually limited to the truly unforeseeable and catastrophic, including war, fire, earthquakes, terrorist acts, pandemics and the like.
As businesses start to review their leases, it’s worth keeping in mind that there is no standard force majeure clause, even if there are common elements to be found in most uses of the clause, and so businesses do need to start with the specifics of their own leases and see what potential relief, if any, a force majeure provision may provide.
Related: Coronavirus Resources For Washington Businesses
Regardless of whether a pandemic is listed within a given force majeure clause, it seems fairly clear that the impact of the coronavirus will meet the typical features of a force majeure event (e.g., unforeseeable, outside of either party’s control, etc).
With that being said, as a word of caution, it is not common for force majeure provisions to provide for delay or suspension of rent payments, absent damage to or destruction of the leased premises caused by the force majeure event. For leases with this type of restriction, it would seem to be an uphill battle to argue that the impact of the coronavirus should trigger rent abatement or other relief for the tenant under the force majeure clause.
Related: Coronavirus And Business Interruption Insurance
And yet, many businesses are closed by government order, through no fault of their own. Absent quick government action to support these flagging businesses, many small businesses will default on their rent obligations unless their lease provides a means of relief.
In light of this, in the coming months I expect to see at least some commercial tenants asserting that their leased premises have been “constructively” damaged or destroyed, in an attempt to delay or suspend rent payment obligations under force majeure clauses. Whether this argument carries the day (in my view, this is unlikely) remains to be seen.
In the meantime, I do encourage businesses to review their leases and see whether there is a force majeure provision—or other provisions—that could provide a means of relief in the event the business cannot meet their rent obligations. Please get in touch if you’d like assistance.
