Leases containing language allowing noncompliance

| Jan 5, 2021 | Real estate litigation |

Contracts and leases have traditionally contained clauses that excused noncompliance if there was an unforeseeable and extraordinary event, such as a natural disaster or emergency. During this year’s pandemic, more leases are being negotiated that contain these force majeure clauses. Depending on the circumstances and their drafting, these clauses can play a major role in real estate litigation.

Leases

Lease and amendments containing more and changed force majeure language have proliferated since March 2020, according to a legal observer. These clauses reflect the pandemic and contain language excusing or delaying performance if there is a pandemic, epidemic, communicable disease outbreak, or other health emergency in the nation or region. Terms also contain performance exclusions because of the threat of these emergencies or any related government restrictions.

Landlords and tenants are usually receptive to these clauses, according to that observer. In the past, force majeure clauses did not typically cover these type of emergency conditions.

Impact

Tenants are usually required to pay rent during a force majeure situation. But landlords have agreed that rent payments may be deferred if there is a future pandemic or force majeure event.

There is disagreement, however, on the type of relief that should be provided. Landlords granting pandemic relief, such as rent deferment or abatement, are being careful and making it clear that future accommodations will not be provided through a lease force majeure provision or other legal requirement.

Tenants in some industries such as restaurants, gyms and daycare centers are receiving more relief than other industries that were less affected by this pandemic. These tenants received relief such as longer deferral periods and more time to pay late rent than other business tenants.

The future

Some national businesses have asked for rent abatement if a future force majeure situation occurs. This is a substantial difference in the way these clauses were handled in the past. This may be a temporary change because of the current health crisis or the beginning of a new understanding or acceptance of these clauses.

Future leases may have explicit language for epidemics, pandemics, and government-imposed restrictions in their force majeure clauses. There may be language allowing rent deferral during a pandemic, according to this observer, but its length may be limited despite the duration of the pandemic or other event.

These clauses must be carefully drafted or may complicate a party’s position in litigation. An attorney can help prepare these clauses and represent a party’s interest in negotiations and legal proceedings.