ACT OF GOD: WHAT IS FORCE MAJEURE AND WHAT DOES IT MEAN FOR YOU AND YOUR COMMERCIAL LEASE?
July 13, 2020
You finally have reached the pinnacle of success. You own your own business, and you have loyal customers you see daily.
Then the unforeseeable happens. A dangerous virus infiltrates the country, and the health officials declare a pandemic. Your government forces you to shut down your business, and your customers shutter themselves at home.
Worst of all, you can't pay your commercial lease because you're not making any money. You're on the brink of losing your business.
This sounds like the stuff of an apocalyptic film, but sadly, every small business owner has lived it.
When disasters not of your own making happen upon you, you have options. In particular, you may have force majeure.
What is force majeure, you may wonder?
Keep reading to learn everything you need to know about force majeure and what qualifies as an act of God in the world of law.
What is Force Majeure?
Force majeure is Latin for "superior force." Often, in the legal world, people will refer to this term as an "act of God" as well.
For example, let's say you own a cupcake shop. You pay a commercial lease for your part of the local strip mall. One disastrous evening a tornado blows through your community, causing significant damage to your shop.
The force majeure clause in your lease may allow you to not pay rent for a period of time or free you from the contractual obligation in your commercial lease. Your landlord cannot sue you because of an extraordinary event, an act of God, prevented you from paying your lease.
A good business law attorney will know when and how to apply a force majeure clause in any contract, not just a commercial lease.
What Qualifies as Force Majeure Events?
The recent Covid-19 crisis has people asking, what is a force majeure event? What exactly does force majeure mean?
A force majeure event is something generally something unforeseeable at the time the contract. There is a great conflict in the law between force majeure and the idea of "pacta sunt servanda" or agreements that must be kept. These two concepts butt heads whenever parties cannot deliver on a contract.
Even the term "unforeseeable" and "unavoidable" is questionable at times. What are truly unforeseeable and unavoidable events?
Most contracts will split force majeure events into two categories: political force majeure and non-political or natural force majeure.
Political Force Majeure
These are events related to changes in legal or political environments. So things like riots due to political unrest or war would qualify as political force majeure.
Before the terrorist attacks in the United States on September 11, 2001, terrorist attacks were not a part of a force majeure clause. Now they generally are.
Your force majeure clause needs to state terrorist attacks explicitly. This will protect you should your business be affected by this unforeseeable and unavoidable event.
Non-Political or Natural Force Majeure
Natural disasters such as tornados, hurricanes, and earthquakes traditionally qualify as force majeure.
Recent controversy though has made the courts question the "natural" part of disasters. If a human-controlled events lead to a natural disaster, like climate change caused by human behavior, for example, was the event unavoidable?
Attorneys are navigating murky waters carefully as they craft force majeure clauses for clients in our world of climate change and the consequences of it.
Even pandemics may qualify under a force majeure clause. You will not find "Covid-19" under any clauses written before March 2020, but you will find other languages that might cover a pandemic.
This language includes words like "disease," "pandemic," "contagion," "illness," "epidemic," and "outbreak." These would all fall under the "unforeseeable and unavoidable" aspect of force majeure" or "act of God" qualifiers.
If you think you have a claim to this clause, be aware that some outliers or circumstances could void the clause. Some clauses, for example, require a direct or indirect causal link between the act of God event and your failure to fulfill your part of the contract. You have to prove that the unforeseeable and unavoidable act directly caused you to be unable to do your part.
This means that you need to have a good reputation and proof that you've worked through difficult times in the past to fulfill your contracts. You need to prove that you do not just give up or have a habit of walking away from a contract.
Sometimes a force majeure clause will require you to provide a prompt, written explanation of the act of God that prevented you from fulfilling the contract. You cannot just fall back on the clause and claim the other party in the contract should have known.
Force Majeure Clauses are generally interpreted by courts VERY narrowly, meaning the specific event needs to be listed in the wording of the clause, ie earthquakes, war, changes in the law, strikes.
In the case of the cupcake shop example above, you could explain how you'd begun work on the cupcakes or perhaps how they were even all completed but then destroyed in the tornado.
The Effects of Force Majeure
So, how does force majeure affect specific contracts or businesses? What does it look like in action? Below are some specific industries that explain how force majeure affect their contracts.
Personal mortgages and apartment leases or contracts do not typically contain force majeure clauses. They exist in business to business contracts and not personal contracts.
So even in the case of a pandemic, you probably need to pay your mortgage or lease unless you work out an arrangement with your lender or landlord.
Commercial Leases and Development Projects
Because commercial leases and development projects are business-to-business contracts, they generally carry force majeure clauses, but the wording varies drastically. So, when rioters take over your storefront and you cannot pay your lease as a result of lost business, your force majeure clause protects you only if it specifically mentions riots.
If your construction company is in the middle of a development project and an earthquake slows or stops your progress, a force majeure clause protects you from being sued for not meeting the deadline if the clause either specifically mentions earthquakes or at lease natural disasters.
Seek Legal Counsel
Now you can answer the question, "What is force majeure?" To make sure your circumstances qualify as force majeure, seek legal counsel experienced in this area of the law.
For the best attorneys in the area, contact us. We'd love to help you.