The COVID-19 pandemic has wreaked havoc on businesses across the United States, forcing many to shutter down temporarily and subsequently putting economic strain on commercial tenants and landlords.
Because lockdown and social distancing orders have temporarily closed many non-essential businesses across Pennsylvania, commercial tenants are struggling to make their monthly payments and obligations under their commercial leases.
Before the COVID-19 pandemic, force majeure clauses were rarely brought up or discussed in lease negotiations. Now, it will likely become an important section of most commercial leases going forward.
Are you a commercial landlord or tenant and want to learn more about force majeure clauses and how they affect you now and in the future?
The attorneys at Hoegen & Associates, P.C. have worked closely with small businesses, landlords, and commercial property owners throughout Northeast Pennsylvania during the COVID-19 pandemic, and we’re here to help you understand your rights and obligations under force majeure clauses. Let’s get started.
What Is a Force Majeure Clause?
Commercial leases often contain something known as a force majeure clause. A force majeure clause can temporarily delay a landlord or tenant’s obligations should the business suddenly shut down due to exceptional, unpredicted circumstances. These can include but aren’t limited to, war, natural disasters, acts of God, and civil disturbances.
However, under many force majeure clause agreements, tenants are still required to make their lease payments, even if all other obligations are exempt. Because of the rarity of circumstances previously mentioned, a significant portion of commercial leases didn’t include force majeure clauses prior to the coronavirus pandemic. Going forward, force majeure clauses will become more common in commercial lease negotiations.
What Happens If a Lease Doesn’t Have a Force Majeure Clause?
Did you omit a force majeure clause in your commercial lease? Or, are you a tenant who is non-exempt from your rent obligations?
Pennsylvania recognizes the common law doctrines of impossibility, which means tenants are exempt from their rent and contractual obligations because a natural disaster or an act of God has hindered their ability to perform. Doctrines of impossibility are becoming increasingly common in commercial lease disputes in the current COVID-19 climate.
Not sure if you qualify under a doctrine of impossibility? Do you have a tenant who isn’t making their rental payments and is filing a doctrine of impossibility? Get in touch with an attorney today. We can help determine the best course of action and explore your options, whether you seek payment from a commercial tenant or exemption from your rental obligations.
What to Do If You Are a Commercial Landlord
It will become more commonplace for commercial leases to include viruses and pandemics as reasons to invoke force majeure clauses. As a commercial landlord, this may be something you plan to negotiate with future tenants.
It’s also something you can expect prospective tenants to seek out in the negotiations phase. There will continue to be a widespread debate about whether force majeure clauses can interpret pandemics as “natural disasters.” This may be something you encounter in lease negotiations in the coming years.
If you are struggling to secure monthly payments from a tenant, know that you have options. The eviction process can be time-consuming and expensive. You may be able to work out a forbearance agreement with them. Here are some other creative alternatives to commercial foreclosure.
Some commercial landlords are, unfortunately, facing foreclosure due to COVID-19. Luckily, there are creative alternatives to commercial foreclosure. With the help of an attorney, you can work out the best solution for your unique situation.
What to Do If You Are a Commercial Tenant
Are you a commercial tenant who operates a non-essential business? Now would be a good time to review the force majeure clause under your current lease.
The clause should outline which events qualify as force majeure events. The clause should also determine whether the clause temporarily excuses you from making lease payments during a short-term closure period. If your force majeure clause does not excuse you, you may be able to still make a case for a force majeure clause or doctrine of impossibility.
If you are struggling to make your monthly payments, an attorney can help you work out a solution with your landlord and avoid eviction or other contractual consequences.
Are you starting a non-essential business and are ready to sign a commercial lease? During the negotiation phase, you can push to include viruses and pandemics in your lease’s force majeure clause. You can also push for the force majeure clause to exempt you from making payments should your business face temporary closures as the result of the COVID-19 pandemic in the future.
Understanding Force Majeure Clauses in Commercial Leases
We’re still not out of the woods yet when it comes to the COVID-19 pandemic. Commercial landlord and tenant disputes are expected to be on the rise for the foreseeable future ‒ but that doesn’t mean you have to go at it alone.
Hoegen & Associates, P.C. is here to help commercial tenants and landlords throughout Northeast Pennsylvania navigate their leases and find solutions in the wake of COVID-19. Contact us today to speak to an attorney.