Businesses deal with contracts on a daily basis—employment agreements, leases, construction agreements, purchase agreements, etc. However, even the most meticulously crafted agreements may encounter unforeseen circumstances that disrupt the normal course of business. In such instances, the force majeure clause becomes a vital component, providing a framework safety valve to address unexpected events that are beyond the control of the parties.
What is Force Majeure?
Force majeure, a French term meaning “superior force,” refers to an unforeseen event or circumstance that prevents one or more parties from fulfilling their contractual obligations. These events typically fall outside the control of the parties to the contract, and could include natural disasters, wars, government actions, strikes, or any other event considered beyond the reasonable control of the parties involved.
The Role of the Force Majeure Clause
The force majeure clause is a contractual provision that allocates risk by specifying the consequences when unforeseen events occur. It serves as a safeguard, offering protection to parties who may find it impossible or unreasonably burdensome to fulfill their contractual duties due to circumstances beyond their control.
Key Elements of a Meaningful and Enforceable Force Majeure Clause:
1. Definition of Force Majeure Events:
Clearly defining what constitutes a force majeure event is essential. This can include events like acts of God, natural disasters, pandemics, acts of terrorism, and other events that are typically beyond the control of the parties. Limiting the definition of what constitutes force majeure can also have significant impacts and consequences to a party.
2. Notice Requirements:
Contracts often stipulate that a party must promptly notify the other(s) of the occurrence of a force majeure event. Timely communication is crucial to trigger the force majeure clause and mitigate potential disputes.
3. Impact on Contractual Performance:
The clause should outline the specific impact of a force majeure event on the parties’ obligations. This may involve suspending performance, extending deadlines, or even terminating the contract without liability. Many times, the force majeure clause will contain certain obligations that may not be extended, delayed or impacted even if a force majeure event occurs.
4. Mitigation Efforts:
Some force majeure clauses require parties to make reasonable efforts to mitigate the impact of the event. This could involve finding alternative means to fulfill contractual obligations despite the challenging circumstances.
5. Duration and Termination:
The clause should specify the duration of the force majeure event and the consequences if it persists for an extended period. This could include the right to terminate the contract if performance remains impracticable for a certain agreed upon period of time.
Force Majeure in a Pandemic
Force Majeure clauses became a hot topic of discussion and litigation with the COVID-19 pandemic, and decisions relative to the scope and interpretation of such clauses are now working their way through the trial and appellate courts around the country. Force Majeure cases were particularly prevalent in the commercial landlord/tenant context, where tenants who were forced to close their doors altogether or who saw revenue shrink significantly often sought relief due to the impact of the pandemic on their bottom line.
In a recently reported case in Florida, a commercial tenant who operates fitness clubs/gyms sued its landlord after the landlord refused to refund the rent paid during the time the gym was closed due to the COVID-19 lockdown orders issued by the Governor. This particular tenant operates on a nationwide level and initiated similar claims in multiple states.
The commercial lease provided, among many things, a force majeure clause, and a warranty from the landlord that the tenant “shall have the right to operate” in the leased premises. The tenant argued that it was excused from payment of rent under the lease’s force majeure provision because the government-ordered restrictions prevented the landlord from honoring its warranty that the tenants shall have the right to operate without restriction its health/fitness club throughout the lease term.
The lease’s force majeure clause stated:
If either party is delayed or hindered in or prevented from the performance of any act required hereunder because of . . . restrictive laws . . . performance of such act shall be excused for the period of delay caused by the Force Majeure Event and the period for the performance of such act shall be extended for an equivalent period . . . Delays or failures to perform resulting from lack of funds or which can be cured by the payment of money shall not be Force Majeure Events.
The Court ultimately sided with the landlord on summary judgment, finding that as a matter of law, the landlord never warranted that the tenant would have the right to operate notwithstanding government restrictions, thus the tenant was not “delayed or hindered in or prevented from the performance of any act required.” Essentially, the landlord only warranted that the space could be used for any purpose permitted by the lease, and that the tenant did not have the “right” to operate a health club/gym, just that the tenant was allowed to. The Court went even further finding that the tenant’s obligation to pay rent was not conditioned upon its ability to continuously operate the premises as a health club/gym throughout the lease term, and the fact that the shutdown orders only caused the tenant to shut down for 75-days out of a fifteen-year lease term did not create a “force majeure” event under the lease.
A similar case, by the same national tenant, reached its way to a Michigan court with a similar result in the landlord’s favor.
These recent decisions, and most pandemic related force majeure cases have firmly established that Court’s will interpret force majeure clauses strictly and narrowly, and are hesitant to apply them as a basis to excuse the performance of a party’s obligation unless specifically and definitively addressed in the contractual language itself.
Bruce Loren, Michael I. Kean, and Frank Sardinha, III of the Loren & Kean Law Firm are based in Palm Beach Gardens and Fort Lauderdale. Loren & Kean Law is a boutique law firm concentrating in construction law, employment law, and complex commercial litigation. Messrs. Kean and Sardinha focus their practice in high-stakes business disputes, with Mr. Kean having extensive experience representing commercial landlords and tenants. Mr. Loren has achieved the title of “Certified in Construction Law” by the Florida Bar, exemplifying the Bar’s recognition of this expertise. Messrs. Loren, Kean, and Sardinha can be reached at firstname.lastname@example.org, email@example.com, or firstname.lastname@example.org or 561-615-5701.