Force Majeure Language Proliferates in Leases
Since the pandemic began, nearly one-third of commercial leases in the US negotiated since March include the pandemic as a force majeure event, according to a survey by LexisNexis.
Robert DiPisa, real estate attorney and co-chair of the Cannabis Law Group at Cole Schotz, notices similar trends. “The force majeure language in almost every lease or amendment that I’ve worked on since March of 2020 has been negotiated to include language covering both the COVID-19 pandemic and future pandemics,” DiPisa says.
DiPisa says much of this language revolves around multiple issues. “The COVID-19 language that I’m seeing incorporated into force majeure provisions, excuses or delays performance by either party in the event of a pandemic, epidemic, outbreak of communicable disease or other national or regional health emergency,” he says. “This language also includes the threat of any of the foregoing scenarios and restrictions imposed by local, state and federal governments.”
Both landlords and tenants are generally receptive to language covering epidemics and pandemics, according to DiPisa. He says force majeure clauses have not always explicitly covered these scenarios.
“However, the parties begin to deviate from each other when it comes to the type of relief afforded to the tenant,” DiPisa says. “If landlords are providing COVID-19 specific relief, such as a deferment or abatement of rent, they’re being careful to provide that the tenant will not receive any further accommodations in connection with COVID-19 through the force majeure section of the lease or otherwise.”
DiPisa is also seeing tenants in certain industries, such as restaurants, gyms and daycare centers, receive more relief than those in industries less impacted by COVID-19. “Some of these types of tenants are receiving longer deferral periods and more time to pay back deferred rent,” he says.
Usually, tenants are required to continue paying rent during a force majeure event. Still, DiPisa is seeing landlords agree that rent payments may be deferred in the event of a future pandemic or other force majeure event.
“Some national tenants are even asking for an abatement of rent if a future force majeure event was to occur,” DiPisa says. “This change represents a significant shift in the way force majeure language has been previously handled. The question is whether this is a temporary circumstantial change resulting from COVID-19 or whether this is the beginning of a conceptual shift regarding a tenant’s payment obligations during a force majeure event.”
DiPisa thinks there will be explicit language covering epidemics, pandemics and government-related restrictions within force majeure clauses in the future. “In addition, we may also see language incorporated permitting the deferral of rent payments during a force majeure event,” he says. “However, if such language is incorporated into a lease, it is likely that the time period for tenants to defer rent will be capped, regardless of the duration of such pandemic or other event.”