How Will The Coronavirus Affect My Commercial Lease?

In this article, we will examine how coronavirus affect commercial Lease agreements and tenants who are experiencing partial or complete shutdown of their business operations due to preventative social distancing measures.

Your Commercial Lease Agreement’s Force Majeure Clauses

As you probably already know, force majeure clauses in commercial leases address events that are beyond the parties’ control, such as natural disasters, the outbreak of war, or other acts of God. Generally, these clauses provide that an affected party’s obligations to perform may be excused or suspended to the extent a force majeure event results in a delay in performance or renders performance impossible.

Is the Coronavirus Pandemic a Force Majeure Event?

This is the million-dollar question – It depends. What determines whether an event is a force majeure event is not the event itself but the commercial lease agreement.

To determine whether the COVID-19 outbreak qualifies as a force majeure event, you must examine the force majeure clause in your lease. Since courts have historically interpreted force majeure clauses narrowly, they will only excuse performance if the definition of force majeure in your agreement expressly includes terms such as “public health emergency,” “epidemic,” “pandemic,” or “disease.” If such language is present in the contract you signed, the coronavirus pandemic is likely to constitute a force majeure event. However, if such language is not present in the agreement, the force majeure clause is not likely to cover the COVID-19 outbreak.

Government Imposed Shutdown – Is It a Force Majeure Event?

If you have shut down your space involuntarily, as many business owners have, in many areas, in response to the coronavirus outbreak, you need to examine the force majeure clause in your commercial lease agreement to determine whether a government-imposed shutdown qualifies as a force majeure event. Even though governmental restrictions typically constitute force majeure events, you should examine your lease agreement with the help of a lawyer to be sure.

However, that even if the COVID-19 outbreak does not qualify as a force majeure event under a particular lease, a party may be excused from performance pursuant to other provisions in the agreement. For example, a tenant who shuts down its operations due to a government directive is complying with a requirement under the commercial lease agreement to conduct its business in compliance with all applicable laws.

How Do Force Majeure Events Affect Commercial Leases?

When an event qualifies as a force majeure event, the landlord’s obligation to provide access to the premises is suspended, and the tenant’s inability to gain access is not interpreted as a constructive eviction. In addition, a force majeure event would likely result in the suspension of a tenant’s obligation to continuously operate, as well as both a tenant and a landlord’s obligation to maintain the leased premises and perform repairs.

How Does the Coronavirus Affect a Tenant’s Obligation to Pay Rent?

Usually, a tenant’s obligation to pay rent is recognized under many state laws as an independent obligation, or one that must be performed without set-off, deduction or abatement regardless of any alleged default by the landlord. Force majeure clauses often expressly exclude payment obligations unless the tenant negotiates specific rent offset rights arising from a force majeure event such as the coronavirus pandemic. The historically narrow interpretation of force majeure clauses makes it unlikely that courts will excuse a tenant from his or her obligation to pay rent or that the commercial lease would otherwise permit any reduction or abatement in rent.

Due to the COVID-19 pandemic, commercial landlords and tenants should review their lease documents to determine their obligations and rights. If you have any questions, Jurado & Farshchian, P.L.’s commercial real estate team is here to answer them – do not hesitate to contact us. Call Jurado & Farshchian, P.L. at (305) 921-0440 or send us an email to Romy@JFLawFirm.com.

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