Many contracts include something called a force majeure clause, sometimes also referred to as an act of God clause. “Force majeure” refers to some external force that impacts the performance of one or more parties under a contract, such as a lease. Such a clause allows one or more of the involved parties to not perform certain obligations under the contract if certain unforeseeable events outside of the control of any of those parties occur that make performance impossible. These clauses may specifically mention pandemics or include general wording that would allow a pandemic to be recognized as one of those unforeseeable events. Once COVID-19 spread and became an official pandemic, force majeure clauses moved into the forefront of commercial real estate contract law.
Force majeure clauses often specify unforeseeable events, listing such things as wars, natural disasters or other “acts of God,” or even orders by governmental authorities as events that the parties to a commercial real estate contract have agreed upon as justifications for nonperformance. The law in Texas does not provide a standard force majeure clause nor a template for one, but most contracts do specify certain events as triggers for employing such a clause. It is extremely unlikely that force majeure clauses in commercial real estate contracts specifically mention pandemics as an event that disallows the performance of contract obligations, otherwise the current COVID-19 pandemic might qualify as a trigger on its face. But because there have been so many government orders in response to the pandemic (such as quarantine/social distance orders), some contracts without the specific language designating pandemics as a trigger still might be able to employ their force majeure clauses. As far as Texas law is concerned, it holds that a party wishing to be relieved of contractual obligations via a force majeure clause, due to COVID-19, must demonstrate that the pandemic is covered specifically or generally by the wording of the clause and that it was not foreseeable by the parties when they agreed to and signed the contract.
Most commercial real estate contracts contain force majeure clauses, like leases. While commercial tenants are usually required to remit payment for occupancy to their landlords even when a force majeure clause has been cited because commercial leases often state that force majeure may not be offered as a defense for a tenant who does not pay rent. The clauses include such statements as a kind of shield for landlords against tenants that refuse to pay rent and attempt to cite force majeure as the justification. (Note: if a commercial lease does not include language that shields the landlord, the rent may be subject to the force majeure clause; and the landlord will be unable to fight it successfully.) Otherwise, force majeure usually excuses both landlords and tenants from the performance of other obligations under the commercial leases to which they are both parties for a specific span of time during which they can recover enough to begin satisfying their obligations again.
Should a contracted party cite a force majeure clause as a reason for not performing certain contracted obligations, a lawsuit can be filed to challenge the claim. While courts of law interpret force majeure clauses in contracts differently depending on the wording of the clause and the specific laws in the area of jurisdiction where the case is tried, the main purpose of these clauses is to allow a party to be released from contractual obligations when performance has been prevented by a force beyond its control. As the COVID-19 pandemic lingers, it has become necessary to consider pandemics very specifically as triggering events for force majeure in commercial real estate contracts. If the wording of the clause does not address pandemics, it will be extremely difficult if not impossible to use a force majeure defense in court, under Texas law.
Engaging an experienced attorney when evaluating your contractual rights and obligations is vital to “bulletproofing” your commercial real estate contracts. Whether or not the force majeure clause in your contract is comprehensive and sound can be assessed considering Texas contract law, because the courts consider cases involving force majeure individually. If you have questions about your commercial real estate contract and force majeure clauses, Reeves Law can advise you about limiting your risk during the COVID-19 pandemic and in case of future events such as this. Contact a licensed attorney at Reeves Law for more information.