The coronavirus disease (COVID-19) outbreak has caused a countless number of companies across the globe to shutter their offices and stores and where possible shift to a “work from home” platform. Clearly this outbreak will result in numerous businesses having immediate and potentially sustained difficulty paying their rent. What does this mean for the typical Landlord/Tenant relationship and specifically a Tenant’s obligation to pay rent?
Many Landlord/Tenant relationships will certainly be tested during these trying times. Although good old-fashioned open communication methods are usually best for any long-term relationship, due to the coronavirus outbreak both Tenants and Landlords may need to rely on the fine print in their lease agreements relating to a “force majeure” event that may trigger an excuse for either party performing certain lease obligations.
Wikipedia defines force majeure as a “superior force, chance occurrence, unavoidable accident”, which is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties (an “act of God”) that prevents one or both parties from fulfilling their obligations under the contract. Wikipedia further states – in practice, most force majeure clauses do not excuse a party’s non-performance entirely, but only suspend it for the duration of the force majeure.
Often clauses in commercial real estate leases require the party making a force majeure claim to provide timely notice to the other party. Also, it is quite common, but not necessarily the case, that Tenants are prohibited from using a force majeure claim as a reason to not pay rent. Depending upon the specific lease language, a Tenant may be able to claim force majeure as a reason to not comply with a non-monetary lease provision that for example may otherwise require them to keep their business open to the public.
The devil is in the details. If you are facing a situation where a force majeure claim may be appropriate, be sure to act in a timely manner and seek the advice of a real estate attorney and other professionals to make sure your actions are appropriate.
