Force majeure provisions in commercial leases generally allow one or both parties to the lease to delay or wholly excuse their performance of certain lease obligations in the event of unforeseen circumstances (often defined to include “acts of God,” fires, natural disasters, war, and governmental action, among other things).  Prior to March 2020, these provisions were often overlooked in lease reviews and negotiations as more-or-less boilerplate and unimportant.  Since COVID-19 and the slew of government shutdowns, occupancy restrictions, lockdowns, and masking requirements that came along with it, force majeure provisions have been a major point of contention between tenants seeking to avoid paying rent during shutdown periods and landlords seeking to collect it.  For the most part, courts have been relatively unsympathetic to tenants who have attempted to utilize their commercial leases’ force majeure provisions to avoid paying rent otherwise due to their landlords.  A recent case, West Pueblo Partners, LLC v. Stone Brewing Co., LLC, is no exception.

In West Pueblo, Stone Brewing entered into a long-term lease for a space which was to be operated as a restaurant and brewery, taking possession of the space in January 2018.  From March 2020 through March 2021, Stone Brewing was required to comply with government shutdown orders and other rules, which virtually eliminated its ability to serve dine-in patrons.  This was devastating to the location’s revenue, and Stone withheld rent from its landlord from December 2020 through March 2021.  As you probably guessed from the title of the article, Stone Brewing relied on its lease’s force majeure provision to excuse its failure to pay.  The force majeure clause in question read:

“If either party is delayed, interrupted or prevented from performing any of its obligations under this Lease, and such delay, interruption or prevention is due to fire, act of God, governmental act or failure to act…or any cause outside the reasonable control of that Party, then the time for performance of the affected obligations of the Party shall be extended for a period equivalent to the period of such delay, interruption or prevention.”

COVID-19 and the associated governmental shutdown orders seem to fit perfectly into this definition of a force majeure event excusing Stone Brewing’s payment of rent, but the Court read the provision narrowly in ruling against Stone Brewing’s arguments.  Per the Court, Stone Brewing was not actually delayed, interrupted, or prevented from paying rent to its landlord.  True, it may have been prevented from serving customers or generating revenue during some or all of the government shutdown period, but this did not literally prevent Stone Brewing from paying rent.  Rather, it simply made the payment of rent and continuing operations more expensive.  The Court also noted that Stone Brewing did in fact have the money to pay rent on the location even though revenue took a major hit due to COVID restrictions.  Courts have relied on these narrow interpretations in ruling against similar arguments made by tenants suffering from COVID-19-related hardships, driving home the point that the express language chosen for these lease terms matters a great deal.

Commercial leases are most often presented as extraordinarily landlord-friendly documents, but reasonable concessions are not impossible to attain.  Your commercial space may be one of the most significant investments made in your business, and it is not uncommon for personal guarantees to be required for the life of the lease.  This means both your business and personal assets are at stake in the negotiations.  If you are planning to enter into a commercial lease or need to negotiate an extension of an existing lease, having legal counsel to explain the various provisions, including those which may be looked at as throwaway provisions, is vital to helping you to protect your interests.  At the very least, you should know exactly what you are signing up for prior to making the long-term financial commitment a commercial lease requires.  If you need any assistance, the NavBat team is here to help.