We recently wrote about the frustration of purpose doctrine regarding New York commercial leases and COVID-19. In this article, we discuss a different kind of legal doctrine that might be used to allow a party to be excused from its contractual obligations: “force majeure” provisions. Unlike the frustration of purpose doctrine, which depends on the facts and events of the real world, force majeure is rooted in the contract itself. The parties decide whether to agree to a force majeure provision and what to include. Put another way, if there is no force majeure clause in the contract, there is no force majeure defense to the performance of a contract. Likewise, if a given force majeure event is not listed in the clause, then the occurrence of that event will not excuse performance.
As noted, force majeure clauses are contract-based provisions that excuse non-performance by one or both parties due to an agreed-upon list of circumstances. These are typically extreme circumstances that are rare and catastrophic that occur outside of the parties’ control, like a pandemic, public emergency, war, or a so-called act of God.
Generally, in New York, parties to a contract are expected to honor the obligations and promises made in their agreement. Moreover, the parties are expected to assess future risks related to the contract and use it to allocate those potential risks between the parties. This is the primary purpose of a force majeure clause; the parties are evaluating rare but foreseeable risks and, as between them, allocating which party shall bear the risk and, often, which party is responsible for lessening the risk.
When negotiating an NYC commercial lease, a force majeure clause and the subject of negotiation should be included. Many issues must be considered when negotiating these clauses. Here is a sample force majeure clause:
” When a company will be excused from performing its obligations hereunder. It shall not be liable for any failure or delay in the performance of its obligations hereunder if performance is prevented or delayed by forces beyond its control, including acts of war or terrorism, union strikes, utility, transmission, equipment, and other infrastructure failures or any other cause that is beyond its control.”
Factors to be Considered in Force Majeure
In these examples, we can see many possible issues that might need re-negotiation. These include:
- Only one party excused? — note in the example above, the force majeure clause only excuses the performance of one party
- Make sure the calamity list is complete — the parties should consider other possibilities to add to the detailed list, like “government-declared national or other public emergencies.”
- Avoid vagueness — in this example, the word “equipment” could be considered vague since “equipment” could be pretty much anything and ownership is not identified; is the “equipment failure” limited to equipment owned by a utility company, or does it apply to a contracting parties’ equipment failure?
- Avoid the “catch-all phrasing”? — If a party wants to limit the clause to the items specified, then it may be better to omit the “catch-all” words at the end (“or any other cause”)
- Specifying What Is Not a force majeure event — another consideration is listing events that shall not be considered to be an event that will excuse non-performance
There are a few other general issues to consider when negotiating a force majeure provision, including:
- Should the force majeure apply if the events are beyond the parties’ reasonable control?
- How long should performance be excused?
- Is some form of notice required for invoking the force majeure clause?
- Do the parties expect performance to resume, and if so, under what conditions?
- Should the parties be required to have insurance to cover force majeure events?
- Who should benefit from the insurance coverage?
- What about cure efforts? — should a party be required to make attempts to cure or avoid the effect of the force majeure event before the clause can be invoked?
Contact Wright Law Firm NYC Today
For more information or assistance with negotiating a New York commercial lease, call the experienced New York commercial lease attorneys at Wright Law Firm NYC. We provide top-tier commercial real estate legal services. Our goal is to build long-term relationships with our clients. By gaining insight into their objectives, we can focus the commercial lease negotiation on what matters most to them. To schedule a consultation, contact our office by e-mail or call us at (212) 619-1500.