The COVID-19 pandemic is causing business disruption around the globe. Office tenants may have a question in common with their landlords (or opposition): What is “force majeure” in the contracts? What should tenants do with, for, or to their landlord?
“Force majeure” is a common but often overlooked clause, by any name, in office lease contracts. It is broadly defined as a circumstance or event beyond control which then makes it difficult or impossible to continue business as usual. When force majeure is invoked, a contract may be suspended, or tenants may be relieved of their obligations, or the contract may be terminated altogether.
A formal “State of Emergency” may be a firm basis to invoke and officially trigger use of the clause. It is rare to contemplate a “stay-at-home” (don’t go in the office) order as an official reason, but that would certainly seem to apply: not only do you not come into work, but buildings are shut down in total, even if remote work persists. Some landlords provide limited access, so what does that count for?
The events most commonly specified in lease contracts equivalent to force majeure may include war, strikes, riots or civil unrest, plague, natural disasters and “acts of God.” However, don’t look just to the broad definitions for guidance; individual contracts have a tremendous amount of variation in precise stipulations, triggers and carve outs that may ultimately prevail in determining your options and a landlord’s defenses. Determining how your contract defines the circumstances covered by a force majeure clause is essential to understanding your rights. Sometimes it’s only the specifics that count and “plagues” may not be one. In any event one of your first calls should be to your attorney with your lease in-hand.
Looking at the current COVID-19 crisis, is it a plague? An “act of God?” It could be either of those events, however there’s more involved than simply knowing you can trigger a force majeure clause… you still need to understand if it’s to your benefit, or perhaps useful as a negotiating tool. “Brokers are not lawyers,” said Bruce Fogelson, an Office Tenant-Rep Broker at Jameson Commercial real estate, “but we can do things you and your lawyer cannot.” For instance, lawyers can only talk to lawyers and tenants may not want to be the trigger-point or get a feel for things in general.
“Time is of the essence” is a key consideration in real estate. Many leases require notice. But, the question is from when? Could it be from the declaration of a state of emergency? That clock may be ticking. But what responses would a notice trigger? “Triggering a force majeure clause should only happen if you understand what’s likely to come next,” said Fogelson.
Before making the decision to trigger the clause, you should understand its remedies and the relationship with your landlord. Does it allow for termination of the contract, and is that what you want and when? Does it permit some suspension or delay of rent? Is the performance of certain obligations discontinued? Are your relevant expenses of base rent, taxes and common area maintenance (CAM) affected? If you don’t fully understand the scope of those questions, there is no way to accurately predict the result of triggering your force majeure clause. “It’s a complicated discussion with your landlord and a good time to call your lawyer and your broker,” said Fogelson. One can seem to be a carrot and the other a stick, however both can preserve your direct personal relationship with your landlord or their agent.
Practical Tips for Understanding Your Force Tenant Majeure Rights
- Review your contracts and examine the wording of the force majeure clause closely. Carefully note the list of non-exhaustive events, and what the consequences are of triggering a force majeure. Who is the messenger? Is it better to be more open to negotiations with a broker than seem litigious with a lawyer (who’s on the clock)?
- Be aware that timing may be essential: look for any stipulations that define a limit to the time when a force majeure clause may be invoked (i.e. specified or within a certain amount of time following business disruption, local or national declarations). Many leases have trigger dates to start but it’s not as common to define an end date, and “plague” may have an extended lag time in the context of a building or tenant. If a building is still maintaining higher levels of disinfection is that a trigger or a risk? Your broker can keep the dialogue open without being a petty or pesky tenant.
- Long lists of force majeure events are typically helpful if you are seeking to rely on the clause, and obviously relevant or descriptive wording (“epidemic”, “pandemic”, “outbreak”, “crisis” or “governmental action”) is particularly useful. Catch-all terms are still relevant but may be less reliable. The specific may exclude the general, or the other way around.
- More recent contracts may include wording that stipulates the force majeure event is “unforeseeable”; in the current context, this can make relying on the clause more problematic. Once identified, what is the unforeseeable length of time and what and when can interruptions be taken as a rent credit or move option?
- With uncertainty high, communication may be the most effective strategy to achieving an acceptable result. Discuss with counterparts a possible negotiation, in part or full, of a postponement of obligations, or attempt a good faith renegotiation, as you deem appropriate. A good office leasing broker can determine how other tenants are being treated or how “the market” is shown as “being reasonable.”
- Some brokers can dig a bit deeper to find the underlying owner, as opposed to just the management company, and bring the issues to the ultimate underlying landlord. Lawyers can only talk to lawyers is a rule. Brokers talk to everyone and in an informal way that may offer the best opportunity for favorable results.
Bottom line: Have your lease reviewed with your lawyer in conjunction with your commercial real estate broker, who can combine professional market insights and relevant contract experience with expert tools for lease analysis. “Jameson’s proprietary lease evaluation tools provide complex analysis for decision making and, with the press of a button, show the landlord’s numbers too,” said Fogelson. “That will provide you the basis to make more informed decisions, and help you need to consult with an attorney to plan your next step, whether it’s to negotiate with your landlord or find a new space.”
DISCLAIMER: Brokers and Bruce Fogelson are not attorneys and do and can not practice law. This article is intended for informational use only and does not assert a legal position, nor does it constitute legal advice. You should always consult an attorney or relevant legal counsel regarding any contract or legal issue.