What New York tenants and landlords should know about lease provisions
How do leases account for emergency situations? New York landlords and tenants must arm themselves with knowledge of natural disaster provisions.
Current events have forced tenants and landlords into complicated situations regarding meeting their obligations. Specifically, lease provisions dealing with disasters and acts of God/force majeure. Force majeure clauses excuse a party’s nonperformance under a contract when extraordinary events prevent a party from fulfilling its contractual obligations. The applicability of a force majeure provision is contract-specific, and there is a high bar for invocation of such a clause. No matter if you own a building or reside in it, having the right insights helps you plan your next move. Understand how to protect yourself while navigating a rather unusual and unprecedented storm.
Understanding Force Majeure
Force majeure applies to outside, sudden events that create obstacles for parties to fulfill contractual obligations, such as paying rent. Such outside events could be extreme weather, flooding, large-scale natural disasters, labor strikes, war and political unrest. In considering the applicability of force majeure, courts look to whether: (1) the event qualifies as force majeure under the contract; (2) the risk of nonperformance was foreseeable and able to be mitigated; and (3) performance is truly impossible. The court’s inquiry largely focuses on whether the event giving rise to nonperformance is specifically listed as a qualifying force majeure in the clause at issue. Even if a party can surmount this requirement, it cannot invoke force majeure if: (1) it could have foreseen and mitigated the potential nonperformance, and (2) performance is merely impracticable or economically difficult rather than truly impossible (unless the specific jurisdiction or contract at issue specifies a different standard).
Invoking Force Majeure in a Pandemic (COVID-19)
The declaration of pandemic standing alone-without a reference to pandemics in a force majeure clause-will not automatically constitute a force majeure given the courts’ focus on whether the event is specified within the contractual language. Clauses that are silent on pandemics, epidemics, or other viral outbreaks are likely to be insufficient for a force majeure defense due to COVID-19, unless, of course, courts liberalize the force majeure analysis to account for market realities. If a force majeure clause clearly covers COVID-19 as a qualifying event in light of the WHO’s declaration, parties seeking to invoke the provision will not need to establish the event was unforeseeable, but will still need to show: (1) that they took steps to mitigate the damage, and (2) that performance is truly impossible (or meets any other standard the clause requires).Ever-expanding governmental restrictions on travel, movement, and large gatherings have resulted in significant business interruptions and widespread event and travel cancellations. Businesses may be able to invoke force majeure provisions to excuse any contractual nonperformance resulting from these measures if the clauses at issue enumerate governmental orders or regulations that make performance impossible. However, governmental regulations making performance impossible does not end the court’s analysis, and parties seeking to avail themselves of force majeure must still establish inability to mitigate, along with impossibility of performance (or any other standard the clause requires). As a result, companies should continue to closely monitor COVID-19 developments and their potential impact on contractual performance, and take and document all reasonable steps to mitigate, where possible, their effect on business operations.
Going forward, landlords must take out the time to ensure they draft concise, strong and comprehensive leases for their protection and their tenant’s protection. All leases need language specific to anything a person would consider an act of God that would keep tenants from fulfilling lease obligations. Agreements also need provisions that clearly state tenant and landlord expectations during sudden external events and situations. This way, landlords have legal protections should a tenant ever exploit a loophole. Including clear language and provisions on leases also allows landlords to negotiate or change agreement terms when long- or short-term emergencies arise.
Preferably, tenants already know what their current lease says about force majeure. Otherwise, they must sit down and read over their agreement terms so they know their responsibilities and options during times of crisis. Perhaps they can negotiate something with their landlord, or maybe the agreement notes whether the landlord has the right to change the lease and under what circumstances the landlord may invoke this right. With a solid understanding of force majeure, tenants can protect themselves against illegal abuse, and they fully comprehend what they agreed to.
Tenants and landlords in New York should turn to legal professionals to help sort out force majeure agreement provisions. Doing so better ensures a positive outcome for parties on both sides of the agreement.