Is COVID-19 A Force Majeure Event In A Real Estate Contract?
Every person, every industry and every economic sector is feeling impact of the coronavirus (“COVID-19”) pandemic. Real estate is no exception. One area of heightened interest is how a global pandemic such as COVID-19 fits into a force majeure provision, which is common in many commercial leases and purchase agreements, but rarely receives much attention. Because these provisions rarely come up after the parties execute the document, Nebraska law offers little guidance.
The first step to determine whether COVID-19 triggers a force majeure clause is to examine the force majeure clause itself. An express reference to a pandemic or epidemic as a force majeure event would trigger the clause. But even then, a necessary next step is to determine what triggering the clause does. It may allow a party to terminate an agreement, or it may only excuse a delay in performance, for example. In some instances, even when a force majeure clause applies, the contract may specifically state that timely payment is not excused.
Further, a force majeure clause that covers events that render performance “impracticable” or “inadvisable” might be broad enough to encompass events related to COVID-19. Whereas, a force majeure provision covering only events that render performance “impossible”, which is arguably a higher standard, might not be enough to encompass COVID-19 hardships within the force majeure clause. Some force majeure provisions also require notice within a specified time or efforts to mitigate one’s damages before the force majeure can apply.
Even if a force majeure provision does not apply, landlords may want to consider rent deferral during government mandated shutdowns or other options to limit the burden on small businesses. Likewise, small businesses should consider disaster relief financing that has been made available pursuant to the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, which includes working capital assistance through loans that are fully guaranteed by the Small Business Association. Such assistance can mitigate damages to tenants, and boost landlords’ arguments against rent abatement due to force majeure.
We will continue to monitor federal, state, and local responses to COVID-19. Please do not hesitate to reach out if there is any way that we can assist you.