Commercial Leases and Force Majeure
April 26, 2020
Partner, Jaburg | Wilk Attorneys at Law
Until recently, many commercial landlords and tenants had never heard of the term “force majeure,” and even if they had, few really understood what it meant. Amongst the countless changes in our lives since the onslaught of the COVID-19 pandemic, is the realization by commercial landlord and tenants that the existence or non-existence of such a lease provision may be critical in determining their rights under their leases, as the day-to-day operation of the vast majority of commercial businesses have been severely impacted by COVID-19.
Force majeure literally means a “superior force,” and is commonly referred to as meaning an unforeseen “Act of God.” The Arizona Revised Statutes, in
- 33-801(6), define force majeure as “an act of God or of nature, a superior or overpowering force or an event or effect that cannot reasonably be anticipated or controlled that prevents access to the sale location for the conduct of a sale.” To be considered to be a force majeure event, the event must (1) fall within the contractual definition; (2) be unforeseen and outside the party’s control; and (3) make it impractical or impossible to perform the contract. If an event is determined to be a force majeure event, then the performance of the parties under the lease is excused for the duration of the event. The challenge, however, is in making that determination. Certainly, if the force majeure clause at issue specifically references a pandemic as a force majeure event, there can be little room for a landlord to argue that the clause is not triggered by the COVID-19 pandemic. Not surprisingly, however, most force majeure clauses in commercial leases and other contracts do not specifically list a pandemic as a triggering event, and there is very little Arizona case law providing clear guidelines as to whether a particular event, such as the COVID-19 pandemic, does or does not fall within the definition of a force majeure event.
Most force majeure clauses are more focused on acts of nature, such as earthquakes, tornadoes, and the like, or acts of the government. To the extent that a business is forced to close due to a federal, state, or local governmental order, it is more likely that the courts may find force majeure to apply. However, the courts are generally inclined to narrowly interpret the scope of such a powerful clause, and in that the government order is the result what may be deemed to be a non-force majeure event, such a finding is far from certain.
Even if a particular force majeure clause is deemed to not apply to the impact of the COVID-19 pandemic, that does not mean that a commercial tenant is without any legal recourse. A party’s contractual obligation to perform may be excused under common law principles if, for some external unforeseeable reason outside the party’s control, performance is rendered extremely impractical or impossible, such that the purpose of the contract has been frustrated. Although the burden of proof for a party claiming to be excused from their contractual obligations based upon impracticability or impossibility is a high one, the application of such legal doctrines does offer a viable alternative to commercial tenants who are unable to clearly establish that a force majeure clause provides them with the relief that they seek.