Commercial Lease Requirements During the Pandemic

Under the current circumstances, with most businesses required to be closed, the question arises as to what a commercial tenant's obligations are under the lease for its premises, most particularly with respect to rent. Can the tenant be relieved of, or does it have a defense to, the obligation to continue to pay rent? The short answer is possibly yes, but the situation is unprecedented and the answer may have to be determined in litigation.

Force Majeure

With respect to the specific language in leases, the terms force majeure and "Acts of God" appear frequently in articles, newsletters and other publications as more and more businesses are looking for ways to freeze performance under their lease or perhaps terminate the lease altogether. A force majeure clause, which typically includes a reference to "Acts of God," is one that permits a party to a contract to be relieved from performing under that contract during a time when, due to some event outside of its reasonable control, the party's ability to perform is impeded, hindered or prevented. Generally speaking, the event must be one that can be neither anticipated nor controlled that may arise from acts of nature (e.g., floods, hurricanes) or of people (e.g., riots, strikes, war). There is a high bar for the invocation of a force majeure clause and whether or not it will apply will depend on the exact language of the lease and the law of the jurisdiction set forth in the lease. In the context of a commercial lease, if the lease contains a force majeure clause that specifically relieves performance in the event of a pandemic or similar event, a tenant may be permitted to close and stop paying rent. However, force majeure clauses often can be a frustrating dead end because: 1) courts apply them very strictly; 2) lease language frequently applies force majeure only to more limited circumstances such as delays in construction; 3) very few leases actually reference pandemics; and 4) many leases specifically do not permit force majeure to forgive payment of rent. If the lease in question originated with a landlord with multiple properties and a strong landlord lease, there is a good chance the force majeure clause will specifically not forgive the payment of rent. That landlord will expect the tenant to insure against that risk. In any event, if there is any chance of making a claim for rent relief under the force majeure clause, the tenant should examine the lease for landlord default provisions or the notice clause to be certain that appropriate notice of tenant's position is sent to the landlord. Otherwise there is a risk of tenant's rights being waived.

Insurance Considerations

It is additionally essential that the tenant review its insurance provisions to determine if there is any coverage for interruption of business or rent insurance. Some leases require business interruption or rent insurance for the landlord's protection. Tenant can make that claim to its carrier.