Yesterday I spoke with a client who walked away from her commercial lease in September and is now getting sued by the landlord. She had 8 years left on the lease and is now facing a potential bankruptcy. Her only defense at this point is force majeure.
Force majeure is a contract provision that allows a party to get out of its obligations if performance becomes impossible.
The force majeure clause has never seen so much action as it has during this pandemic – from commercial tenants not paying rent to suppliers not delivering goods, to customers not paying invoices and insurance policies refusing to cover claims. There's been a lot of litigation filed and we have now started to see how some of this litigation is developing.
These cases are reiterating a longstanding rule that for force majeure to work to get out of a contract, the performance has to be impossible, not just unprofitable. Financial difficulties alone don’t rise to the level of force majeure.
But a well-drafted contract provision might circumvent that. Addressing force majeure has become a big part of contract negotiations and should be considered for all types of contracts.