Will a “Force Majeure” Contract Provision Help a Business With Its Creditors, Lenders and Landlords

Posted By: Lisa Harper COVID-19 , GRA Blog , Legal ,

By Lisa F. Harper, Esq., TFH Legal

Force Majeure is a French term meaning superior force. Certain contract provisions are referred to as “force majeure” because they allow a party to the contract to avoid or delay performance of its obligations when certain circumstances beyond its control arise. Exactly which circumstances that are considered to be such a “superior force” to suspend performance depends on the language of the clause.

Frequently such clauses reference natural disasters like hurricanes and earthquakes which are sometimes included in the term “acts of God.” Force majeure clauses also frequently include war; terrorism; labor strikes, and similar conditions beyond the control of the party seeking to use the provision as a defense. Some examples of force majeure clauses are below:

In the event that Landlord or Tenant shall be delayed or hindered in or prevented from the performance of any act (other than Tenant's obligation to make any payment), by reason of strikes, lockouts, unavailability of materials, failure of power, restrictive governmental laws or regulations, riots, insurrections, the act, failure to act, or default of the other party, war, terrorism, or other reason beyond its reasonable control, then performance of such act shall be excused for the period of the delay and the period for the performance of such act shall be extended for a period equivalent to the period of such delay.

In no event shall a party be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God.

The Coronavirus pandemic might be included as an “act of God” and some force majeure clauses may include the words pandemic or epidemic specifically.

Economic hardship alone, however, caused by a force majeure event is not generally enough to excuse performance of your monetary obligations. Thus, an economic recession, for example, that may be caused by a war, for example, which is certainly not the fault of either party and beyond anyone’s reasonable control, is not a legal basis for using the force majeure clause.
Force majeure clauses are more often applied when things like a weather event cause damage to the business premises and a business cannot operate. Thus, the economic effect alone of the Coronavirus pandemic may not be sufficient under the current state of the law to rely on the force majeure clause for relief from monetary obligations under a contract.

That said, a governmental required shut down or required reduced operations may be more akin to weather events. Thus, such governmental actions may serve as a basis for a force majeure argument, at least for the period of time of the governmental imposed controls.

But, as is most frequently the case, the devil is in the details and you have to read your force majeure clauses carefully. That’s because most force majeure provisions today exclude relief from obligations to pay. The first force majeure clause shown above is a good example and its relevant portion is reiterated below in bold:

In the event that Landlord or Tenant shall be delayed or hindered in or prevented from the performance of any act (other than Tenant's obligation to make any payment), by reason of strikes, lockouts, unavailability of materials, failure of power, restrictive governmental laws or regulations, riots, insurrections, . . ..

Because Courts read force majeure clauses “narrowly;” meaning that they apply them as they are written and don’t read things into them that are not expressly there, such provisions have been upheld by the Courts and have not allowed a party to terminate or modify its obligation to pay through a force majeure event.

 

About TFH Legal 

Taylor, Feil, Harper & Lumsden P.C. (TFH Legal) is a full service Atlanta law firm that concentrates in providing corporate and litigation services to a diversified business community ranging from entrepreneurs to Fortune 500 companies. Learn more.