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“This case encapsulates the COVID-19 pandemic landscape and its economic impact on businesses. A thriving restaurant with long standing rental history which finds its doors all but entirely closed by the government in response to a fast-spreading disease pitted against its large commercial landlord which insists that rent must still be paid. The following is the basis for the Court’s decision,” wrote Judge Romaine Frances O’Brien from Arlington County District Court in Virginia.
In the case brought before Judge O’Brien, the landlord argued that the force majeure provision in the parties’ lease obligates the restaurant-tenant to pay rent notwithstanding the governor’s pronouncement of a state of emergency, which led to the closure of the full-service restaurant, and limited its operations to delivery and takeout only. The restaurant-tenant argued that the purpose of the lease was frustrated by governmental action, the remedy for which is rent abatement pursuant to the lease’s force majeure clause and the doctrine of impossibility. The court disagreed.
Section 33 of the lease, “Force Majeure,” states, as follows:
In the event that either party hereto shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of strikes, labor troubles, inability to procure labor or materials, failure of power, restrictive governmental laws or regulations, riots, insurrection, War, Acts of God, fire or other casualty or other reason of a similar or dissimilar nature beyond the reasonable control of the delayed party, then performance of such act shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. The provisions of the Section shall not operate to excuse Tenant from the prompt payment of rent, or any other payments required by the terms of this Lease and shall not operate to extend the Lease Term. Delays or failures to perform resulting from lack of funds shall not be deemed delays beyond the reasonable control of a party.
Although this force majeure clause clearly states that performance of any act required “hereunder” by reason of restrictive governmental laws or regulations shall be excused, it also states that it shall not operate to excuse tenant from prompt payment of rent. Therefore, the court concluded that, “in the final analysis, the terms of the contract negotiated by sophisticated parties, absent any ambiguities, govern the relationship. The Force Majeure clause very clearly states that the payment of rent will not be excused in the event of ‘restrictive governmental laws or regulations’, which clearly the Governor’s Orders were.” Commercial tenants should think twice before entering into leases that affirmatively bar rent abatements, in the event of force majeure.
Ali Dehghan is an associate with James G. Dibbini & Associates in New York City, New York.
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