Force Majeure in San Diego Commercial Leases

Posted by Lee Sterling | Posted in Landlord-Tenant | Posted on 11-12-2012

Force Majeure?

 

 

Most commercial leases in Carlsbad and North County contain what is called a Force Majeure clause. It comes from the French meaning a “greater force,” and is invoked to excuse performance of an obligation because of an event uncontrollable by the party invoking the clause. Some of the events used to excuse performance are such things as flood, war, riot,  or act of God. In California, “Acts of God” in public contracts are defined as earthquakes greater than 3.5 on the Richter Scale and tidal waves. It’s important, in commercial real estate leases, to negotiate what will excuse performance in the case there is such an event or in the event of other specified events, such as labor strikes, inability to obtain necessary materials, unexpected soil conditions etc.

For landlords, recent experience around the country has indicated the need for more careful drafting. For example, does the term “act of war” include terrorist attacks or biological warfare agents? What kind of weather or fire event would excuse performance here in Southern California? What if the local economy were interrupted for a period of time, like in New York City after the hurricane? The issue most often comes up in leases when the tenant is unable to move into space when originally planned because construction of the building or the space has been delayed, and the landlord invokes the force majeure clause. The reason landlords are most concerned about the language of the clause is that they commonly draft the initial lease document, and courts usually interpret clauses in favor of the nondrafting party. The one exception is when the court finds that parties have equal bargaining power. Most of the leases I help negotiate are between major land-holding landlords and my clients, small business entities. The difference in bargaining power is evident. However, fortunately, my clients get the benefit of my experience as a real estate lawyer for 27 years, who negotiated leases on behalf of landlords and and developers with major tenants, like Walmart. In order to do so, I had to study and understand the impact of lease clauses.

A tenant should be concerned about the notice provision of the Clause. How soon after the claimed event should notice be given? How should the notice be given, and what kind of detail in the notice should be included? From a tenant’s standpoint, the effective date of the notice should be on receipt; from the landlord’s perspective notice should be effective when sent. What happens if the delivery of the notice is prevented by conditions resulting from the cause of the force majeure?

What happens to the rent due in the event of an interruption in occupancy as a result of a claimed force majeur? What if all or a portion of the leased premises is destroyed? Does the landlord have the obligation to rebuild? If so, how soon after the event will construction have to begin? As you can see, more attention should be paid to the force majeur clause by the tenant and the tenant’s representative. As always, it’s worthwhile to have your lease reviewed by your attorney.

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