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Hello,
As with many legal documents, leases are often filled with phrases and terms that are not commonly used and, quite frankly, do not always make a whole lot of sense to most tenants. It certainly does not help when these phrases and terms are in Latin.
In today's newsletter, we look at four concerns to consider with the term "force majeure", which is often relegated to the dark and murky world of boilerplate, but which can prove troublesome if ignored.
Sincerely,
Alan Katz Mintz & Gold LLP |
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Force Majeure: Ad Infinitum and Ad Nauseum
There is a (probably apocryphal) lease clause that has been around for years and now floats around the internet, and which I have always wanted to slip into a lease to see if anyone actually reads what we draft:
- Section [__]. End of the World. If the end of the world is imminent before all Tenant's obligations are fully performed, then Landlord may elect to declare all rents to the end of the term to be immediately due and payable in full and the foregoing may be enforced against Tenant by any available procedure. For remedial purposes, Landlord will be deemed to be aligned with the forces of light, and Tenant with the forces of darkness, regardless of the parties' actual ultimate destinations, unless and until Landlord elects otherwise in writing.
Hey, life can get slow in the legal trenches! Yet it is scary how much that clause sounds like many actual lease clauses. Talking about forces of light and darkness can make a commercial real estate lawyer feel like Luke Skywalker, or perhaps Darth Vader (in my case, Dark Helmet, from Mel Brooks' Spaceballs is probably more appropriate). But this does raise a topic that comes up in every lease and which leaves more than a few tenants scratching their heads; i.e., "force majeure". I realize that once any lease or lawyer starts spitting out the Latin phrases de novo, a practice that is certainly sui generis to my profession, it is sure to induce napping and caveat emptor applies, but stick with me, pro tempore, on this one. Force majeure is defined as a "superior or irresistible force", and is meant to protect parties to a contract when a part of that contract cannot be performed due to causes which are outside the control of the parties and could not be avoided by the exercise of due care (e.g., hurricanes, earthquakes, floods, end of the World, LeBron James, etc.). Most leases provide that if the landlord is unable to fulfill, or is delayed in fulfilling, any of its obligations under the lease due to a force majeure event, the tenant's obligations will not be affected or excused and the landlord will not have any liability to the tenant. Well, that sounds sort of reasonable, but a tenant should be aware that force majeure can come up in a number of instances in its lease, not all so reasonable. Consider addressing, inter alia, the following four force majeure concerns in your lease:
- You should try to make the inability to perform provision mutual. You also may face circumstances beyond your control that can prevent or delay your ability to meet your lease obligations, such as completing construction during a strike. But realize that inability to pay rent can never be considered a force majeure event.
Some landlords will resist making an inability to perform clause mutual if you are allowed a commonly used "due diligence extension" in the event of a default (i.e., if you are given additional time to cure defaults which by their nature cannot be cured within a specific time period, provided that you are exercising due diligence to effectuate that cure). Although there is no real benefit to the landlord by denying force majeure protection, arguendo, the due diligence extension should provide adequate protection.
- Include outside limits on force majeure extensions for certain important milestones requiring landlord performance. You negotiate hard for certain milestones and, although it is reasonable for the landlord to be afforded more time for causes that it cannot control, at some point the delay should not be solely your problem, whether or not beyond the landlord's control.
For example, notwithstanding any force majeure events, at a certain point you may need to terminate the lease and look elsewhere if the landlord cannot deliver the premises and complete the initial construction, or cannot timely rebuild after a casualty or condemnation; or you may need to avail yourself of abatement or self-help rights if the landlord is unable to provide critical services such as HVAC or complete essential repairs.
- Require the landlord to take all commercially reasonable steps to address the delay. This may seem obvious, but you need to state it explicitly if you expect the landlord to be obligated to undertake more expensive alternatives such as overtime.
- Provide the following limitations on force majeure extensions which are customary in general contract negotiations. You should be aware that you are not likely to be able to impose these restrictions except in a fairly large lease, or in connection with a lease that includes a particularly important milestone, if for no other reason than that these clauses are often not heavily negotiated:
- Provide an exception if a force majeure event could have reasonably been anticipated. Force majeure is meant to cover occurrences which could not have been planned for or prevented and, if that is not the case, and the landlord could have mitigated the effects of the force majeure event, then the brunt of the consequences should not fall on you alone.
- Require the landlord to provide notice promptly after the occurrence of a force majeure event that affects lease deadlines. Absent such notice, including a reasonably detailed description of the force majeure event, it should be deemed that no extension is required. This notice will not only allow you to anticipate problems but will also prevent force majeure events from causing delays unless there is an actual impact.
- Prevent separate extensions as a result of each one of a number of force majeure events which may have a concurrent effect. Extensions should only be available for actual delays.
I could have told you, ab initio, that when a landlord grants itself provisos and extensions, res ipsa loquitur, a tenant would have to be non compus mentis not be wary. Prima facie, the same is probably true when lawyers start spouting their Latin. |
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For the Latin Challenged
| ab initio | from the beginning | | ad infinitum | to infinity; without limit | | arguendo | for the sake of argument | | caveat emptor | let the buyer beware | | de novo | anew or over again | | inter alia | among other things | | non compus mentis | not of sound mind | | prima facie | on the face of it; at first view | | pro tempore | for the time being | | res ipsa loquitur | the thing speaks for itself | | sui generis | of its own kind; unique |
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About Us
Mintz & Gold prides itself on providing the highest quality legal representation often associated with large law firms with the attention and reasonable costs of a smaller law firm. Mintz & Gold's Real Estate Department has a national practice specializing in a broad range of commercial real estate law, with a particular focus on commercial leasing. We have extensive experience with respect to office, retail and shopping center leasing, and have represented major Manhattan landlords, national and multinational institutional tenants and national retail chains. Most of our attorneys practiced for many years at large institutional law firms before joining Mintz & Gold. For more information regarding Mintz & Gold's real estate practice, click here. For a list of representative transactions of Mintz & Gold's real estate group, click here. For Mintz & Gold's website, click here. Contact: Alan Katz katz@mintzandgold.comTelephone: (212) 696-4848 Fax: (212) 696-1231 You are receiving this newsletter because you signed up to receive it or are a client, a friend or have worked with us on a prior transaction.
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This newsletter has been prepared for general information purposes only, and is provided with the understanding and subject to the user's agreement that it does not constitute the rendering of legal advice or other professional advice by Mintz & Gold LLP, and does not create any attorney-client or other special relationship. The content of this newsletter may be considered advertising under the ethical rules of certain jurisdictions and prior results do not guarantee a similar outcome. You should not rely upon this newsletter without seeking legal advice from an attorney licensed in the relevant jurisdiction(s). THE CONTENT OF THIS NEWSLETTER IS PROVIDED AS-IS WITH NO REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT. Additionally, the information contained in this newsletter does not constitute tax advice. Any discussion of tax matters contained in this newsletter is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending to another party any transaction or matter. Copyright © 2013 Alan Katz. All rights reserved.
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