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What if commercial landlords won’t uphold force majeure clauses?

On Behalf of | Apr 19, 2024 | Commercial Real Estate

Businesses entering into commercial tenancies often devote a lot of effort to contract negotiations. A lease is a long-term commitment that imposes multiple years of financial obligations on a company in most cases.

Those entering into a commercial lease typically seek terms that limit the possible risks for the business. For example, it is common practice for commercial leases to last for multiple years. Tenants might request a shorter lease duration. They might also include special clauses that reduce the company’s risks when signing the lease. For example, a force majeure clause could protect a business from financial liability when the company cannot operate due to factors outside of the company’s control.

What if a landlord claims that the force majeure clause doesn’t apply given the circumstances?

Litigation might be necessary

The purpose of a force majeure clause is to eliminate financial obligations when a business can no longer operate due to no fault of organizational leadership. A force majeure clause acknowledges that there are sometimes circumstances outside of anyone’s control that can prevent a company from functioning the way it usually does.

In theory, a force majeure clause provides an opportunity for a commercial tenant to prematurely end a commercial lease or avoid collection efforts for unpaid rent. A landlord might try to claim that the factors do not reach the necessary standard to trigger the force majeure clause in a bid to continue demanding rent from a commercial tenant.

If a commercial landlord refuses to abide by the terms included in a lease agreement, then a tenant may have few options other than to take the matter to civil court. Provided that a judge agrees that the circumstances are outside of the company’s control, it may be possible to end the lease early despite the landlord’s protests.

Frequently, a business attempting to use a force majeure clause to end a tenancy may also need to address other challenges simultaneously, such as business interruption insurance claims and disputes about contracts that the business cannot fulfill due to interrupted operations.

Given that a lease could potentially persist for years beyond when a company ceases to function due to factors outside of its control, adding a force majeure contract in a lease can be a very intelligent decision when agreeing to rent a commercial property. Including thoughtful terms in a lease and seeking to enforce them using litigation, if necessary, can help businesses limit the harm caused by a sudden cessation of operations.