As the COVID-19 pandemic continues to impact businesses throughout the nation, many of our landlord and tenant clients are seeking input on basic lease-related issues. The effect of force majeure provisions in leases and the applicability of business interruption insurance are two of the most commonly asked questions.
Force Majeure.
A typical “force majeure” provision in a lease excuses each party from any delay in performance of that party’s obligation under the lease (other than the payment of money) to the extent that the delay is caused by (for example) strikes, riots, acts of God, shortages of labor or materials, war, terrorist acts or activities, governmental laws, regulations, or restrictions, or any other causes of any kind whatsoever which are beyond the control of such party.*
- Is COVID-19 included? COVID-19 is included within the scope of most force majeure provisions. Using the sample language above, COVID-19 (and/or the inability to open for business due to COVID-19) falls within one or more of acts of God, …governmental laws, regulations, or restrictions, or any other causes of any kind whatsoever which are beyond the control of such party.
- Does tenant have to pay rent? Most force majeure clauses carve out from the force majeure definition the payment of money. As a result, under a typical force majeure provision, a tenant who could not be open for business due to governmental restrictions, such as a shelter in place order, would not be in default for breach of a “continuous operations” clause of a lease. However, a typical force majeure provision will not excuse that same tenant from the non-payment of rent (being an obligation that is performable by the payment of money).
- What are landlord’s options if tenant doesn’t pay rent? If the tenant is not paying rent in accordance with the lease, the landlord has all rights and remedies provided under the lease.
- Most leases include, among landlord’s remedies for a tenant default, the right to terminate the lease or terminate the tenant’s right to possess the premises. In electing whether or not to enforce those remedies, a landlord needs to consider whether, at the end of this pandemic, it prefers a leased space (even if it has not collected full rent for some period of time) or vacant, unleased premises. The answer may well differ on a project by project, tenant by tenant basis.
- Some of our landlord clients intend to respond to requests for rent abatement, with a proposal to negotiate some deferral of rent in exchange for an extension of term, or a “payback” period, etc. and in connection with that, have prepared a form response to abatement-requesting tenants outlining information that the landlord will require before negotiating with that tenant. A generic version is included as Appendix A.
