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Force majeure, otherwise defined as “superior force” (such as the Corona virus - more on that here) comes into play in circumstances that are out of the control of a tenant and landlord. A force majeure clause is quite a common clause that you will come across in a commercial lease.
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What does force majeure mean?
A force majeure clause unbinds both the tenant and landlord from certain obligations otherwise stated in the lease, in the event of a situation that is beyond the control of both parties. You may come across the term “act of God” also used to describe a force majeure.
Situations that are considered out of control include storms, tsunamis, earthquakes and any other natural/weather related incidents. Additionally, rebellion, acts of war, terrorist activities, revolutions, and even some circumstances involving a fire are also all included.
The type of circumstance that is considered as being force majeure can be negotiated and edited by the landlord and tenant during the lease negotiation period.
What obligations are protected?
The obligations that are typically protected in a force majeure clause include
A force majeure can also work in the other direction during which the tenant is actually not entitled to have these obligations excluded in the case of an uncontrollable situation.
The broader the force majeure clause is, the more beneficial it is for the tenant, as it allows for greater protection.
Why is it important?
If a force majeure clause is not included in the lease and an uncontrollable circumstance occurs, it is the laws and rules of the region where the space is located that come into play.
These legal practices are usually not beneficial to the tenant since they are generally used in the case of landlord’s neglect which is not existent in this scenario. In order to avoid this, it is important to create and carefully negotiate a force majeure clause.
Additionally, you should ensure that the force majeure clause does not only consider just the event but also any effects of the event afterwards.
This is important especially in areas that are prone to natural disaster such as hurricanes, such as Florida.
The damage caused may result in not only the space rendered inoperable but also effects on the community or a lack of certain services such as clean water that may make it impossible to run the business even if the space was only partially damaged. In a scenario like this a landlord may want to include the option of terminated the lease as a part of the force majeure.
In the case that the owner wants to sell the commercial property that had been damaged as a result of a natural disaster or other natural occurrence, the force majeure clause is significant. In this scenario, if the clause does not state who is liable and responsible for renovations.
As a tenant, what should you request?
The most obvious request you can make as a tenant is a rent abatement (free rent period) if there is a great deal of damage to the space, and in the event of a percentage lease, if there is any abatement or adjustment to the breakpoint due to lost revenue. If the space is damaged to the point of complete destruction you may even consider including an option to terminate the lease in order for you to be able to relocate.
Let’s say the damage is not too severe and simply needs some repair, who is responsible? This is dependent on a variety of factors and location, but it is negotiable to have the landlord be held responsible for these repairs (possibly even bringing the space back to a plain vanilla shell prior to re-building).