The coronavirus pandemic has had an unprecedented impact on businesses in the United States. Prior to the coronavirus pandemic, many business were flourishing in the record breaking economy; however, within a matter of weeks, the coronavirus pandemic caused the economy to grind to a sudden halt with many businesses having to close their operations. Although the economy is slowly returning from the sudden halt, the uncertainty surrounding the coronavirus pandemic has created a bleak economic outlook for the foreseeable future and many commercial landlords and commercial tenants are currently facing difficult financial decisions regarding the future of their businesses.
Accordingly, this Article will provide an analysis of whether certain landlord obligations and/or tenant obligations under a commercial lease may be temporarily delayed or completely excused as a result of the coronavirus pandemic and the resulting economic hardships constituting a force majeure event under the commercial lease.
In most instances, a force majeure clause in a commercial lease allows for either a temporary delay or a complete excuse of certain landlord obligations and/or tenant obligations under the commercial lease due to an event beyond the control of the landlord and/or the tenant. Typically, a force majeure clause in a commercial lease provides the events that constitute a force majeure event under the commercial lease, with such events including, but not limited to, labor disputes, civil commotion, war, warlike operations, invasions, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, fire or other casualty, or acts of God. It is important to note that even upon the occurrence of a force majeure event, the force majeure event will only temporarily delay or completely excuse certain landlord obligations and/or tenant obligations under a commercial lease if the force majeure event actually prevents the landlord and/or the tenant from fulfilling such obligations under the commercial lease.
There has been a considerable amount of discussion regarding whether the coronavirus pandemic and the related economic hardships are events beyond the control of the landlord and/or the tenant, and therefore, whether the coronavirus pandemic and the related economic hardships constitute a force majeure event under a commercial lease. Although courts are likely to address such issues in the near future, there is presently little case law regarding whether a global pandemic and the resulting economic hardships are events beyond the control of the landlord and/or the tenant. Assuming that the coronavirus pandemic and the related economic hardships constitute a force majeure event under a commercial lease, the majority of force majeure clauses in commercial leases expressly state that a force majeure event will not completely excuse a tenant from paying its rent obligations under the commercial lease nor will completely excuse a landlord from paying its tenant improvements obligations under the commercial lease. On the other hand, assuming that the coronavirus pandemic and the related economic hardships constitute a force majeure event under a commercial lease, a landlord and/or a tenant will likely be temporarily delayed from performing non-monetary obligations under the commercial lease if the coronavirus pandemic and the related economic hardships have caused the landlord and/or the tenant from fulfilling such obligations under the commercial lease. As such, it is important for landlords and tenants to carefully review the force majeure clause in a commercial lease prior to entering into the commercial lease.
For additional information or questions regarding the application of a force majeure clause in a commercial lease during the coronavirus pandemic and the related economic hardships, please contact real estate attorneys Stephen Perry at sperry@blalockwalters.com or Matthew Staggs at mstaggs@blalockwalters.com.
Matthew A. Staggs, Esq,
Real Estate Law, Finance Law
Stephen G. Perry, Esq.
Real Estate Law, Finance Law
