COVID-19 and Force Majeure Clauses in Commercial Leases

April 6, 2020

By: Natalya Belonozhko

Coronavirus (COVID-19) and governments’ orders to close non-essential businesses in Oregon and Washington have impacted businesses’ ability to operate in their leased spaces and pay rent under their commercial leases.

Force Majeure Clause

Most commercial leases include a force majeure clause. A force majeure clause provides for the parties’ responsibilities in the event of an unforeseen event such as an act of god, governmental restriction, governmental order, or other events beyond the reasonable control of the party obligated to perform under the lease.

A typical force majeure clause will provide that a party is excused from performance under the lease (which may or may not include payment of rent) for the time period that the force majeure event persists. If a force majeure clause does not exclude payment of rent, then a commercial tenant may be entitled to an abatement of rent during the time period that a force majeure event persists if the party’s inability to perform is caused by the force majeure event.

A force majeure clause may also provide that advance notice to the landlord is required by the tenant.

Government Orders, Epidemic and Pandemic

A force majeure clause that provides for a government order or action, and the occurrence of a pandemic, epidemic, public health emergency or other similar events may be applicable to the current COVID-19 pandemic if shown that tenant’s inability to pay rent is directly related to the governments’ orders due to COVID-19 and the tenant provides evidence showing a loss of income.

The current pandemic cannot be used by commercial tenants as an opportunity to evade payment of rent. Real loss of income must be shown and all requirements in the force majeure clause must be followed.

 Act of God

Does the corona-virus qualify as an act of god? The definition of an “act of god” is an overwhelming, unpreventable event caused exclusively by forces of nature, such as an earthquake, flood, or tornado. Traditionally, acts of god have referred to natural disasters, and not pandemics, epidemics or public health emergencies.

In addition to the new SBA funding options which provide for Small Business Administration (SBA) grants and loans and the Payroll Protection Plan (PPP) loans that can be used for rent payments, detailed in our other blogs, businesses may look to loss of business or business interruption coverage under their business insurance policies.

Landlords should be aware of Oregon’s 90-day moratorium on eviction of commercial tenants, effective April 1, 2020 before taking any action against a commercial tenant. Washington currently has no such moratorium on eviction of commercial tenants in place.

Please contact Natalya Belonozhko at 360-59-097 or natalya@horensteinlawgroup.com, Steve Horenstein at 360-597-0965 or steve@horensteinlawgroup.com or Maren Calvert at 360-597-0978 or maren@horensteinlawgroup.com for a review of your commercial lease and to discuss your options.

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