Does the Force Majeure (Act of God) Provision in my commercial lease excuse my payment of rent? Does a crisis such as the Coronavirus trigger the provision in a commercial lease agreement to excuse payment of rent?
On Wednesday, March 11, 2020, the World Health Organization declared the coronavirus outbreak a pandemic. The outbreak has caused a significant disruption to numerous commercial businesses. Recently, the Mayor of Los Angeles has even ordered a moratorium on commercial evictions for all business owners that are unable to pay rent as a result of the coronavirus.
In this blog, we will discuss whether the coronavirus crisis can trigger the force majeure provision in a commercial lease agreement to excuse a commercial tenant from paying rent. The assertion of this provision is a fact-specific determination that requires a thorough analysis of the provision contained in your commercial lease agreement.
Generally, commercial leases will contain a force majeure provision, which is intended to excuse performance by one or both parties of a particular event that prevents or delays performance. The concept of this provision has developed over the years. Force majeure or the equivalent Latin term “vis major,” is not necessarily restricted to the equivalent of an act of God.
In order to be excused from performance, such as paying rent, a party must show that due to the changed circumstances, performance has become impracticable. See Mineral Park Land Co. v. Howard (1916) Cal.156 P. 458. The change in circumstances is unforeseeable and beyond the commercial tenant’s control. A force majeure provision should describe: (i) the categories of events that will excuse performance; (ii) the degree in which performance will be excused; and (iii) any notice that is required by the party claiming an excuse from performance.
The test for determining whether a particular circumstance gives rise to asserting a force majeure provision involves looking at the particular circumstances to determine if the insuperable interference occurred without the party’s intervention and could not have been prevented by the exercise of prudence, diligence, and care. Pacific Vegetable Oil Corp. v. C.S.T., Ltd. (1946) 29 Cal.2d 228, 238. If an event such as the coronavirus triggers this provision, the party asserting the provision may suspend, defer, or be released from its duties to perform without liability. As a result, if a commercial tenant successfully asserts the force majeure provision based upon the coronavirus outbreak, the commercial tenant is excused from paying rent.
Some examples that can trigger the force majeure provision in a commercial lease agreement include, but are not limited to:
Ultimately, the enforcement of a force majeure provision depends on the specific language contained within the commercial lease agreement. Commercial tenants who are considering invoking the force majeure provision should carefully review their commercial lease agreement to determine whether the outbreak of the coronavirus rises to a level where the force majeure provision is applicable.
If you are a landlord or tenant who is dealing with a commercial lease dispute that is related to the coronavirus, you should consult with an attorney. At Schorr Law, we pride ourselves on providing a full platform of commercial real estate attorney services. We have been and will continue to work remotely to ensure that your needs are taken care of during these harsh times. To see if you qualify for a free 30-minute consultation, contact us today!