Is Your Landlord Trying to Get Paid Off the Virus? If Your Lease Has a "Force Majeure" or Emergency Clause then Payment May Be Excused Due to an ‘Unforeseeable Event’ Making It Impracticable to Pay
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INDYBAY STATES, “PEOPLE, NOT PROFIT. COVID-19 HAS DISRUPTED OUR LIVES UNLIKE ANYTHING WE HAVE SEEN IN OUR LIFETIMES. THIS APRIL, THOUSANDS, IF NOT MILLIONS, OF PEOPLE WILL NOT PAY THEIR RENT. WE ARE BANDING TOGETHER: FOLKS WHO CANNOT PAY AND THOSE WHO WILL JOIN THEM IN SOLIDARITY. WE REFUSE TO PAY FOR THE RIGHT TO LIVE. MANY WILL HAVE TO CHOOSE BETWEEN RENT AND FOOD, AND MANY WON’T HAVE ENOUGH FOR EITHER. WE WILL NOT SACRIFICE OUR LIVES TO KEEP THE MARKET AFLOAT, OR TO FILL THE POCKETS OF REAL ESTATE LENDERS AND LANDLORDS.”
RESTATEMENT (SECOND) OF CONTRACTS § 261 provides:
Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.
From [JDSupra] Until the COVID-19 (new coronavirus) pandemic, the term force majeurewas one not readily recognized outside of legal circles. Now, in light of the rapid spread of this disease and its ensuing consequences, businesses are scrambling to ascertain whether they can (i) cancel, suspend or delay contracts based on force majeure clauses, (ii) limit liability for breach or nonperformance thereunder and/or (iii) oppose invocation of a force majeure defense.
While each agreement’s language, the governing law and the surrounding factual circumstances will differ and require individual analysis, below we present a short primer on the law of force majeure and on alternative theories available to argue for or against nonperformance of contractual requirements. We start with some generally accepted principles, and then examine some case law in the District of Columbia, Virginia and Maryland (the “Metropolitan Area”). To read our advisory on how courts in Illinois, California, and New York have addressed force majeure clauses, click here.
What does force majeure mean? What is a force majeurecontractual provision?
The term force majeure is a French term – literally meaning “superior force” – that worked its way into English law from the Code of Napoleon. Black’s Law Dictionary defines it as follows: “An event or effect that can be neither anticipated nor controlled; esp., an unexpected event that prevents someone from doing or completing something that he or she had agreed or officially planned to do.”
A force majeure clause is a provision found in a contract that, if applicable under its terms, has the effect of terminating, suspending, or limiting performance by a party of its contractual obligations when extraordinary circumstances beyond the party’s control prevent such performance. Application of a force majeure clause in certain circumstances can even entitle a party to compensation, e.g., the return of a deposit. In essence, a force majeure clause gives a person an “out” to one extent or another from contractual duties.
Do the words “force majeure” need to appear in the contract?
No. The agreement can contain a provision having the same effect as a force majeure clause without using those words. For example, a contract might contain a paragraph called “Termination for Cause” that may list events that will allow nonperformance. Thus, it is important to review each contract to determine if it enumerates force majeure events even in the absence of those talismanic words.
What are typical force majeure events/occurrences covered in contracts?
Force majeure events or occurrences may be natural or manmade. Typical force majeure clauses cover such specific matters as: acts of God; war, insurrection, or civil disturbance; natural disasters like earthquakes, fire and floods; transportation disruptions; strikes and labor disturbances or labor shortages; government shutdowns, etc. At the same time, however, force majeure clauses may also include a “catch-all” provision that triggers its consequence, for example, “or any other emergency beyond the parties' control, making it inadvisable, illegal, or impossible to perform their obligations under this Agreement.”
It is important to note that courts historically construe force majeure clauses narrowly to limit them to their express terms only. Thus, as applicable here, if the clause specifically covers such things as epidemics, pandemics or diseases that have caused nonperformance, there obviously is an excellent argument that the new coronavirus pandemic would trigger the force majeure clause. At the same time, if a catch–all clause includes “other emergencies”, it too could very well capture a party’s inability to perform due to COVID-19, in light of the President and the Metropolitan Areas’ officials respectively having declared national and state emergencies.
A harder question surrounds the term “act of God.” What follows is a brief discussion of decisions from the local courts in the Metropolitan Area that interpret that phrase, and how that phrase might apply to cases involving COVID-19. It is important to recognize, however, that each case will turn on specific facts and context, and additional contract language that might limit application of an act of God, such as whether the act of God had to have been unforeseen. [MORE]
