If you are a person who never reads the fine print of a contract, you have probably never heard of a force majeure clause.
However, that clause in every commercial contract for the past century may be worth reading for those suffering the economic hardships caused by coronavirus and the economic shutdown.
That relatively short paragraph in a commercial lease offers a glimpse into why all that fine print is important, and many business owners are discovering they can take shelter in its words.
Broadly written and mostly ignored until now, force majeure essentially says the contract you are signing is not enforceable in the event of a declaration of war or an act of nature.
In the past, what exactly constitutes an act of nature has been a bit unclear and some businesses are vowing to fight it in the courts, while many businessowners are justly using the force majeure to say, “Wait a minute. We are in the middle of a worldwide pandemic and I am being forced to close my business due to circumstances outside my control. I am activating my force majeure clause in response to my inability to pay the rent.”
As a result, commercial developers, property managers, and businesses who lease space to another business are getting their first look at post-coronavirus lease contracts.
What used to be a short, single paragraph is coming back a page or more in length, clarifying in detail, what exactly constitutes an act of nature. In addition to global pandemic, which is meticulously explained, these contracts are also allowing for events of civil unrest and riots.
As one landlord put it, the force majeure is now a lot more iron clad and landlords are going to have to go along with it.
While most businesses are willing to work with tenants on situations where they cannot pay the rent, and essentially defer the collection process until solutions can be found, it is now more than ever a choice about what the two parties will and won’t negotiate to reach a solution.
The force majeure is being expanded to try and clarify all circumstances that uphold that argument.
One example is that of a knee surgeon who isn’t allowed to perform knee surgeries because they are shut down for six weeks. Clearly there is no money coming in to pay the rent.
Some of these longer force majeures are written to say, if you close the hospital to elective surgeries, I will need to forego payments for six months or until the hospital reopens and I am able to offer services.
Force majeure is just one of the unexpected consequences of the coronavirus that will be with us for a long time.