Restaurant Law Blog

Wednesday, March 18, 2020

COVID-19:Understanding force majeure clauses in your lease and other contracts

Force majeure is a contractual provision that excuses a party’s performance if an unforeseeable event prevents them from fulfilling their obligations under the agreement.  Not all agreements (especially lease agreements) contain these provisions, but some of them do.  Landlords frequently object to the inclusion of these provisions for practical reasons.  However, that does not mean that you are without recourse if your agreement lacks such a provision.  I’ll discuss that below.  

Additionally, it should be noted that force majeure does not entirely excuse a party’s non-performance, rather it suspends performance during the unforeseeable event and for a reasonable time period thereafter. 

When it comes to COVID-19, courts will evaluate:

(1) Whether your force majeure clause is intended to include a pandemic.   Many clauses are limited to acts of god (e.g. fires, earthquakes, floods), acts of war (inc. terrorism, etc.) and do not include mass illness. It is unclear whether the courts would view “acts of god” to include a pandemic such as COVID-19, although a great argument could be made. Regardless, it’s obviously better if your agreement contains that specific language. 

(2) Whether COVID-19 was truly unforeseeable.

(3) Proof that the COVID-19 outbreak was the direct cause behind the city’s decision to close your (and all) restaurants; and lastly

(4) Evidence that the forced closure of your restaurant has resulted in a near complete inability to meet your contractual obligations.  

If your agreement lacks a force majeure clause, you may still be entitled to relief under the common law doctrines of “frustration” or “impossibility.”  In New York, the doctrine of impossibility applies when a party’s continued performance is objectively impossible due to an act of god, act of war, or force majeure event, so much so that it is fundamentally unjust to hold the parties to their original agreement.   

Keep in mind, force majeure is not limited to lease agreements but rather applies to most of the vendor agreements you may have.  Think of all of those other agreements that you may have personally guaranteed (e.g. linen, POS, soda dispensing, dish washer, etc.).

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