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The Commercial Lease: Force Majeure and COVID-19

The current pandemic has forced many commercial lawyers to dust off their law books in the search of guiding principles to help their clients deal with the impact of the COVID-19 virus.  Principles such as force majeure, usually never seriously contemplated by either the landlord or the tenant at commercial lease negotiations, have taken center stage during this crisis. However, if lawyers and their clients rarely took stock of this clause, it seems that the courts were even more oblivious to its existence, as there is very little case law on this concept to help guide us.

In simple terms, the concept of force measure may apply in circumstances when a contract can no longer be fully complied with or adhere to because of the occurrence of an extraordinary or extreme event, commonly referred to in commercial leases as an “act of God”.  In theory, this would absolve the relying party of any liability for non-compliance or breach of the terms of the commercial lease.
 
The following are simple questions that you can ask yourself to help you determine whether you can rely on the force majeure clause given your particular set of circumstances.
Is COVID-19 an “act of God”? In other words, is COVID-19 a triggering event that would allow for the reliance upon the force measure clause? It seems that courts will allow for the use of the force majeure clause if the clause includes wording such as “public health emergency”, “pandemic”, “epidemic” or similar words or phrases.  Although the inclusion of the phrase “act of God” may be sufficient, it is thought that it is more likely that a court would allow for the reliance on a force majeure clause if it includes wording that more accurately applies to the current pandemic.
 
Did COVID-19 have a direct and clearly identifiable impact on your business? To rely on the force majeure clause, COVID-19 must have negatively impacted on your ability to perform your obligations under the commercial lease. In other words, there must be a clear loss and a provable inability on your part to comply with the terms of the commercial lease.  To better explain this, let’s use the example of nonpayment of rent. In other words, it is incumbent on you to show that COVID-19 reduced your revenues and that despite concrete efforts to find other sources of income, you are simply incapable of paying the rent. You must be able to clearly prove this – conjecture will not suffice.
 
How do I invoke the force majeure clause? If you believe that the force measure clause applies to your particular situation, then it is good practice to give notice of your intention to rely on this clause as soon as possible. As mentioned above, be ready to explain how your situation (and in line with our example above, how your financial situation) has made it impossible for you to comply with the terms of the commercial lease agreement.
 
For more information please do not hesitate to contact me at pmanousos@merchantlaw.com

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