Is Covid-19 a force majeure event for leases?

A force majeure clause is a provision that excuses one or both parties from its obligations under a contract when circumstances arise outside of the control of the party, and make fulfilling the terms of the contract impractical or impossible. Given the longevity of the Covid-19 pandemic, many are asking if it could be viewed as a force majeure event within a tenant's lease agreement. In short, it depends on the language within an individual contract between a landlord and the tenant. Force majeure clauses aren't often left to interpretation, to ensure a tenant can only call on that clause if certain requirements are met. The three criteria that must be met to invoke force majeure are:

  1. The event must be outside of the reasonable control of the party;
  2. the ability of the affected party to meet the demands of their contract must have been prevented, impeded, or hindered by the event;
  3. and the party must have taken all reasonable steps to avoid or mitigate the event or its consequences. 

Most would consider the Covid-19 pandemic outside of any party's reasonable control. Some contracts will specifically list pandemics, epidemics, or diseases‚Äù as outside of a party's control, which makes claiming Covid-19 as a force majeure event a clear option.  

If a contract does not explicitly list these items, then it must be decided if Covid-19 falls under an act of God, action by government, or some other generalized provision in the contract. Depending on where the contract is held, again, the Covid-19 pandemic would most likely fall into one of the above provisions. But just because it meets the event requirement, does not mean it meets all of the necessary criteria listed above.

The effect the pandemic has had on the party to meet contractual obligations may be more difficult to prove. An impact on the profitability of a company due to Covid-19 is most likely not enough to enact a force majeure event. This would be similar to an economic downturn or adverse business conditions, which again are typically not enough to enact a force majeure clause. The pandemic must have created circumstances that make it impossible to perform the actions of the company. 

Finally, the party must have taken reasonable steps to avoid the event or consequences of the event. This is very specific to the actions of the businesses involved in the contract, and thus would be analyzed on a case by case basis. This could mean operating as a to-go or delivery restaurant instead of dine-in, or utilizing alternative suppliers if one is unable to get the needed goods from typical sources.

Because of the reach of the Covid-19 pandemic, it could mean less options for mitigating the impact of the event, but a party will need to show efforts to overcome obstacles. If it seems clear they have exhausted all efforts, the force majeure event could be claimed. 

The result of claiming a successful force majeure event usually results in a few different actions that include: extension of the timeline to perform the obligations in the contract, a suspension on obligations for the duration of the event, or if an event lasts beyond a certain period of time, the contract may be terminated in extreme cases.

Because the ability to claim a force majeure event is dependent on a contract's specific language, each case must be analyzed individually. If you are a party receiving a force majeure notice, it is important to consider if it falls within the protections given in your force majeure clause. If you are a party issuing a force majeure notice, make sure you have documented your actions and provide thorough records with your notice. Additionally, making a force majeure notice should be done diligently. If it is not accurate, it could be considered a breach of contract.

As the Coronavirus pandemic continues to stretch on, and many states are enacting new restrictions as cases are again on the rise, many tenants could feel a second wave of decreased revenue. If you are a party considering issuing a force majeure notice, or a party receiving one, it is always good practice to consider each notice on a case-by-case basis depending on the contract and the specific tenant; and to involve the proper legal council. 

This does not constitute legal advice. We recommend that you consult with legal counsel regarding any force majeure notice.

July 1, 2020
Barton Strawn

Get updates in your inbox

Retail news, tools, and tips to help you make the most of your prospecting, analysis, and outreach.
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram