User:Ihopper/COVID and Lease Agreements

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The COVID-19 pandemic, and its related governmental orders, pose novel questions regarding the scope and applicability of Force Majeure clauses in commercial lease agreements, or the availability of common law defenses, such as impossibility or commercial frustration.

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It is common practice for commercial lease agreements to contain Force Majeure clauses. Such clauses operate to excuse the parties from certain obligations in the event that unanticipated circumstances make performance impossible. If a lease agreement contains a Force Majeure clause, then the terms of that clause will govern whether the COVID-19 pandemic, or the associated governmental responses, is a force majeure event. That said, Force Majeure clauses often include a set of contemplated events that would excuse a party from performance under the agreement, and courts generally construe Force Majeure clauses narrowly to only excuse a party from performing its obligations under the lease if  the event at issue fits within the type of events contemplated in the agreement. Particularly significant in the context of the COVID-19 pandemic is the fact that a disruptive act by the government is typically contemplated as a force majeure event in commercial lease agreements.

However, if a lease agreement does not contain a Force Majeure clause, common law doctrines such as impossibility or commercial frustration may be available to excuse a party’s nonperformance. The defense of impossibility applies in narrow situations wherein an unforeseen event, not the fault of the parties, occurs which completely prohibits the parties from performing pursuant to the terms of their agreement. A typical situation where impossibility may be invoked is when a subsequent change in the applicable law completely prohibits performance under the contract at issue. The various Federal, State, and Local governmental responses to the COVID-19 pandemic, may provide a commercial tenant with the basis to invoke the defense of impossibility.

However, to the extent that the defense of impossibility is unavailable to a commercial tenant, the doctrine of commercial frustration may be available as a broader defense to excuse nonperformance in the light of the COVID-19 pandemic. Commercial frustration may serve as a valid defense for a commercial tenant's nonperformance in situations where the tenant leased the premises for a specific purpose. If it is shown that the lease agreement does not have a force majeure clause and the commercial tenant was no longer able to use the lease space for the essential purpose for which it was leased due to the COVID-19 Pandemic, or its related governmental responses, then commercial frustration may apply.