Handling ‘force majeure’ in lease agreements
With the unprecedented levels of disruption caused by the coronavirus pandemic, many landlords and developers will be facing significant delays in the performance of their building obligations under agreements for lease and other development agreements.
Whether they are entitled to any relaxation of those obligations as a result of the current pandemic will depend very much on the specific terms of the agreement.
Most agreements for lease will contain some form of provision, often referred to as a force majeure clause, under which the contractual obligations of the parties are eased or modified in some way following the occurrence of certain events outside their control.
Whilst some contracts might list specific events such as adverse weather, strikes, government action etc or refer generically to force majeure, it is more common for an agreement for lease to oblige the landlord to use reasonable endeavours to achieve practical completion by a given date, but to allow extensions of time which are either permitted by the building contract or which are fair and reasonable where completion is delayed due to an event or cause that is beyond the landlord’s reasonable control.
Given the uncharted waters we find ourselves in, it is perhaps reasonable to assume that such a clause will come to the aid of any landlord who currently finds itself unable to comply with its build obligations due to the government lock-down, health and safety requirements or shortages of labour and materials arising from the coronavirus outbreak.
However the current crisis should not be regarded as a free pass for parties seeking to escape their contractual obligations and there are a number of practical considerations that need to be borne in mind if you are seeking to rely on a force majeure clause:
- Look carefully at the specific wording of your agreement as to what extensions or other relaxations the parties have agreed to. Force majeure is entirely a matter of contract and if the contract is silent, a defaulting party will not be relieved of liability for late or non-performance of obligations;
- Make sure you comply with any procedural requirements set out in the contract, serving any necessary notices within the deadline and in the manner required and where necessary stating the precise cause of the delay;
- You will also need to show you have taken reasonable steps to mitigate the consequences of the delay or find alternative ways to perform your obligations, even if performance is made more expensive or less profitable as a result. However your duty to mitigate would not extend to breaching existing contracts with third parties;
- Keep detailed records of the steps you have taken to work around the force majeure event – this could be crucial in defending any later claim for breach of contract.
No doubt as we all strive to adapt to this new environment, most landlords and tenants will be willing to be flexible rather than get involved in costly disputes. However anyone seeking to rely on force majeure provisions in their agreement is recommended to take legal advice as soon as possible.
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