Attorney Brendan A. Sweeney of Sweeney Law, P.A. Featured in the October Edition of the Broward County Bar Barrister – Florida Commercial Leases and the Effects of Force Majeure Clauses in the Era of COVID-19
Our country is experiencing one of the most unprecedented events in modern history. Businesses throughout the country and Florida are feeling the economic impacts as governmental regulations, aimed at curbing the spread of COVID-19, have made it difficult to continue normal operations. This economic turmoil has business owners asking one common question: “If my business is not making money, how will I be able to pay rent?” Some of these businesses are exploring solutions that would relieve them of their rent obligations. These businesses may be correct in doing so, but this area of the law can become confusing as there are different approaches depending on the circumstances. These different approaches may be in the form of a force majeure clause within the lease agreement, or based on the common law doctrines of impossibility, impracticability, or frustration of purpose.
Force majeure clauses are common in many types of agreements, especially leases. Force majeure clause seek to protect the contracting parties from events outside of their control that may render continuing obligations under the contract harmful or moot. Before the pandemic, these clauses never attracted much attention because of the limited and very specific events in which they can be invoked. But COVID-19 has made them very relevant.
Force majeure clauses are easy to spot. Most are included as standard language that begins under a section of the agreement titled “Force Majeure.” This clause will lie dormant within the lease unless a specified event occurs, often from a list that includes earthquake, hurricane, other acts of God, loss of power, government laws and regulations, war, insurrection, and even pandemic. The remainder or the clause will contain the parties’ rights and responsibilities and what performances may be excused. Therefore, a force majeure clause provides a starting point
for determining whether a party’s non-payment of rent will be excused.
Force majeure clauses are not the only avenue a business may explore in obtaining relief from rent payments that they cannot afford due to the current health crisis. The common law doctrines presented below may also help in providing a lawful basis for the non-payment of rent.
Impossibility. Impossibility is a defense to a breach of contact action that involves the destruction of the subject matter of the agreement. For example, if a leased property burned down, this doctrine may provide the lessee with a basis for not paying rent. When looking at the language of a contract, it is important to discern whether the purpose of the contract was made impossible during a temporary COVID-19 government closure or from the effects of one.
Impracticability. Impracticability i a lesser degree of impossibility. Here, while performance under the agreement is not impossible, the circumstances may mean it is in, either, or both parties’ best interests to terminate the agreement. In circumstances during the pandemic, it could be deemed that a party’s duty to perform is impractical yet must still fulfill the contract terms when possible. This could result in a party having to perform partially or resume full performance with a reasonable extension of time.
Frustration of Purpose. With frustration of purpose, performance by either party may not be impossible, but an event occurs that is outside of the parties’ control and substantially affects the purpose of the contract, and the other party was aware of this purpose. Due to the emergency ordered closures of COVID-19, the courts may be willing to expand their opinions of what defines the defenses of impossibility of performance or frustration of purpose within
this specific context.
Force majeure clauses may preclude the availability of these common law doctrines. Further, the clause may even exclude inability to pay rent as an obligation to be suspended during the force majeure event, leaving a party still responsible for rent. Therefore, it is important that these clauses are reviewed carefully to determine the meaning.
When faced with a force majeure issue, courts will strictly interpret the clause to best give effect to the parties’ intentions. This analysis is fact based and will only provide relief to a party who has carefully and correctly claimed force majeure. In most cases, this means that the circumstances must clearly align with at least one of the events specifically listed in the clause. As such, the common law doctrines of impossibility, impracticability, and frustration of purpose are best utilized as defenses when the agreement is silent on force majeure. If an agreement lacks force majeure language, the common law doctrines act as a default. In any case, there will be a thorough analysis of the facts of the case before a court will decide whether any of these concepts are appropriate as applied to the facts.
See page 15 for original article – https://www.browardbar.org/wp-content/uploads/barrister/2020/sept/Barrister-September-2020.pdf