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Force
Majeure
Clauses in Leases
By Jessica S. Hoppe and William S. Wright
I
n light of recent catastrophic events, lawyers, lessors, and lessees should take stock
of the lessons learned. They should review the leases they draft or receive and ana
lyze the positions in which each party would find itself if rights under the force
majeure clause of the lease were exercised. Unique considerations and risks exist for
lease parties in different parts of the country. These will affect the particular language of
the force majeure clause of a lease, as well as the notice provisions that affect a party’s
success in asserting force majeure to excuse performance under a lease.
Force majeure is French for “greater force.” The con often will interpret them in favor of the nondrafting party.
cept of relieving a party of its obligations because of Conversely, lessees must ensure that the clause is negotiat
some uncontrollable event goes back at least to the Code ed and drafted fairly and reasonably, particularly for pro
of Hammurabi, the early Babylonian law established visions affecting operations, services, and costs. The more
circa 1780 BC, that relieved carriers whose goods were sophisticated the parties, the higher the standard a court
seized by enemy armies. This concept was introduced will apply in reviewing the language because the negotia
originally to American common law by the Napoleonic tion and drafting of the contract should reflect the parties’
Code. respective bargaining positions and ability to retain quali
In England, force majeure, without more, means acts fied counsel.
of God. California’s Public Contract Code for state deal
ings defines “Acts of God” as earthquakes greater than Catastrophic Events
3.5 on the Richter Scale and tidal waves. Cal. Pub. Cont. The tragedies of the September 11, 2001, terrorist attacks
Code § 1705(b)(2). The Restatement of Torts refers to and more recently of Hurricane Katrina have emphasized
extraordinary forces of nature with resulting harm that the importance of well-drafted force majeure clauses.
differs from mere negligence and occurs free from Lessors and lessees have watched and learned a great
human involvement. Restatement (Second) of Torts deal from the litigation regarding force majeure provisions
§ 451. Yet, in American jurisprudence, “force majeure” as relied on to excuse nonperformance after September 11,
a concept includes more than the natural force of acts of 2001. Case law in New York now requires force majeure
God alone—it also refers to events that originate in clauses to reference explicitly the event or act that would
human agency. prevent a party’s performance under the lease. One World
NASA images courtesy the MODIS Rapid Response Team at Goddard Space Flight Center
The party claiming force majeure must use prudence, Trade Ctr., LLC v. Cantor Fitzgerald Sec., 789 N.Y.S.2d 652,
diligence, and care in anticipating and avoiding the 655 (N.Y. Sup. Ct. 2004) (stating the general rule in New
event and, once the event occurs, in trying to overcome York that a party is excused from performance “only if the
it. Force majeure should be distinguished from the doc force majeure clause specifically includes the event that
trine of impossibility, another equitable principle that actually prevents a party’s performance”). In the case of
excuses performance because of circumstances that are terrorist attacks, the phrase “acts of war” may not be suf
absolutely not possible to overcome, and from the doc ficient. Since 2001, parties have begun to use phrases such
trine of frustration that excuses performance because of as “enemies of the State” or “public enemies” and to
something not reasonably foreseeable or controllable, include language specific to biological warfare agents and
yielding extreme and substantial hardship or unreason “dirty” bombs. Although in most states an explicit listing
able expense or difficulty. Force majeure clauses now are of the particular events that will constitute a force majeure
common in many sorts of contracts and essentially is not necessarily required, inclusion of specific examples
excuse one or both parties from liability on the occur clearly indicates the parties’ intent regarding events that
rence of an unforeseen and extraordinary event beyond would excuse performance and would prevent litigation
the control of the asserting party, such as a flood, war, after a catastrophic event. A catchall phrase such as “other
riot, or act of God, that prevents or delays performance conditions similar or dissimilar to those enumerated in
under the contract. this section, which are beyond the reasonable control of
Like other provisions of a lease, force majeure clauses the party obligated to perform” may also be used; howev
typically are drafted by the lessor. Therefore, lessors er, such phrases have been held to be limited to events or
must take care in drafting the clauses because courts occurrences of the same kind and nature as the particular
events or acts listed under the doctrine of ejusdem generis.
Jessica S. Hoppe is an associate and William S. Wright a Morgantown Crossing, L.P. v. Manufacturers and Traders Trust
partner in the Birmingham, Alabama, office of Balch & Co., No. 03-CV-4707, 2004 WL 2579613, at *5 (E.D. Pa. Nov.
Bingham LLP. Ms. Hoppe is vice-chair of the Real 10, 2004). A better practice would be to define “force
Property Emerging Issues and Specialty Leases majeure” generally and then to list specific examples using
Committee. a phrase that clearly manifests the intent that the list is not
PROBATE & PROPERTY � MARCH/APRIL 2007 9
to be construed as limiting the gener A201, ¶ 4.3.7.2, available at Ins. Co., 540 F.2d 1257, 1261 (5th Cir.
al provision, such as “including www.engin.umich.edu/class/cee431 1976).
without limitation.” /AIA/05.04.05_A201_SAMPLE_ These cases indicate not only that
Issues in the nature of delay and encrypted.pdf. These are classic force the courts generally uphold provi
force majeure are encountered much majeure concepts. Note the require sions drafted by sophisticated par
more frequently in construction proj ment that the event be “abnormal.” ties, but they also seem to indicate
ects than in leases, so a look at the A typical day of snow in winter in that if the parties had unequal bar
general construction contract forms Minneapolis–St. Paul, Minnesota, gaining power, the courts might have
available from the American Institute should not be a basis for delay; the used a more lenient standard. For
of Architects (AIA) is helpful. For contractor should have assumed that example, when the contract is “stan
weather-based delays, Form A201 in its schedule. A huge storm closing dardized and between parties of
“General Conditions” requires that the downtown for a week may be unequal bargaining power, an ambi
the weather condition (1) be abnormal treated differently, however, unless guity in the writing will be interpret
for the period of time, and (2) could one occurs every month in winter. ed strictly against the drafter and in
not have been reasonably anticipated, A possible weather force majeure favor of the nondrafting party.”
plus (3) had an adverse effect on the provision that attempts to define Westfield Ins. Co. v. Galatis, 797 N.E.2d
construction schedule. AIA Form what is normal might state: “Daily 1256, 1262 (Ohio 2003). This factor
snow [rain? cold? and so on] more may be important for drafters of resi
than 30% [or other amount] in excess dential and small business leases in
of the maximum daily average which lessees are generally less
Since 2001, parties reported for that month by the sophisticated.
have begun to use National Oceanic and Atmospheric
Administration, or successor agency
Hurricanes present a set of chal
lenges that are similar to other large-
phrases such as reporting weather, during the pre scale catastrophes but different from
“enemies of the ceding five years.”
Courts tend to interpret force
more pinpoint location events.
Because many people evacuate an
State” or “public majeure clauses narrowly, especially area before a hurricane makes land
enemies” and to when both parties are sophisticated
and have equal bargaining power.
fall or as a result of the mass destruc
tion that may be wrought by a hurri
include language For example, in the One World Trade cane, many residents have some
specific to biologi Center case mentioned above, the
court noted that the defendants were
level of difficulty returning to their
homes and businesses. After Katrina,
cal warfare agents “sophisticated commercial tenants power was out for weeks in the areas
and “dirty” bombs. and there is no reason to excuse them
from the operation of the force
hardest hit, gasoline supply was lim
ited, phone service was spotty, and
majeure clause which they freely cellular service for both incoming
negotiated. Defendants bargained and outgoing calls was the luck of
away their right to hold the lessor the draw. These consequences can
liable for nonperformance in the face affect the parties to a lease in a vari
of the tragic, unanticipated events ety of ways. For example, services to
which destroyed the Building.” 789 be rendered to the property by the
N.Y.S.2d at 654–55. landlord may be impossible to
Similarly, in Hawaii, “when the accomplish because of the landlord’s
contract has been negotiated between inability to reach the property, use
two parties of equal sophistication electrical service, or use the usual
and equal bargaining power, the rule forms of communication.
of interpreting ambiguities against Lessors and lessees have reacted
the drafter has been held inapplica to the consequences of a hurricane
ble.” Amfac, Inc. v. Waikiki Beachcomber by specifically anticipating the mas
Inv. Co., 839 P.2d 10, 25 (Haw. 1992). sive effects on all facets of the local
In jurisdictions following this strict community. An example from the
approach, the ambiguous provisions lease of a hotel condominium in
should be construed in favor of what Florida states: “The provisions of this
reason and probability dictate was Section shall be applicable if there
intended by the parties as opposed shall occur, during the lease term, or
to favoring the nondrafting party. before the commencement thereof,
See Eagle Leasing Corp. v. Hartford Fire any . . . economic downturn affecting
10 PROBATE & PROPERTY � MARCH/APRIL 2007
South Florida which continues for The overflow of the Mississippi
three or more months.” The quoted River is of such frequent occur
language undertakes to insulate the rence that it cannot be regarded as
party claiming under the section belonging to that class of extraor
during a normal recovery period dinary and unforeseen accidents
after a major hurricane, while setting which entitle the tenant of a predi
some measurable standard as well. al estate to an abatement of rent.
Of course, after Katrina there was Indeed, the overflows of this river
and still remains a tremendous are so frequent, that a system of
amount of goodwill, because many levees has been constructed,
parties to leases were more or less in under the authority of the state,
the same difficult and stressful situa for the purpose of preventing, we
tion; however, goodwill may last for may say, the annual inundation of
only a limited period, particularly in its banks; and so frequently have
the case when one party is located in the waters of this river made
an area not affected by the catastrophe. breaches in the levees that even a
As of the writing of this article, crevasse itself cannot be consid
the states hardest hit by Hurricane ered as an extraordinary accident
Katrina (Mississippi, Louisiana, and in the sense of article 2714 of the
Alabama) did not have any reported Code, and as such entitle the ten
decisions specifically addressing ant of a predial estate to a reduc
force majeure clauses in relation to tion of the stipulated rent,
Katrina, although the issue is certain although such crevasse should be
to have arisen for many landlords the means of overflowing the land
and tenants. leased by the tenant, and thereby
destroying a part or the whole of
When a Force Majeure
his crop. The periodical overflow An important
Event Ceases to Be
of the waters of a river is not an
a Force Majeure Event
extraordinary accident; and if a
consideration in
Another important consideration in party seeks to give to an inunda drafting a lease
drafting a lease is whether a cata tion that character, he must show
strophic event that is typically defined that it was unusual, unforeseen,
is whether a
as a force majeure may lose this classi and one to which the country was catastrophic event
fication if the event occurs with regu not ordinarily subjected.
larity and should therefore be within
that is typically
the reasonable contemplation of the Viterbo v. Friedlander, 120 U.S. 707, defined as a force
parties at the time of contracting. For 731–32 (1887) (quoting from Vinson v.
example, in Logan v. Blaxton, 71 So. 2d Graves, 16 La. Ann. 162 (1861)).
majeure may lose
675, 677 (La. Ct. App. 1954), the court It is possible to describe accurately this classification if
found that seasonal rains were not a an event at its initial occurrence as
force majeure event because they were unforeseeable but later, because of
the event occurs
to be expected; the court therefore held the regularity with which it occurs, with regularity.
that the lessee was obligated to per to find that such a description is no
form under its oil lease. This considera longer applicable. In Gulf Oil Corp. v.
tion indicates that parties may want Fed. Energy Reg. Comm’n, 706 F.2d 444
to consider the frequency at which (3d Cir. 1983), the court found that if outside of a force majeure excuse to
events occur, and if catastrophic a certain type of event is spelled out nonperformance. The element of
events, such as major hurricanes, con in a contract as a force majeure event, uncertainty that defines unforesee
tinue to plague a certain area, the performance may not be excused ability is negated by the regularity
court may find that it was a reason nonetheless when that event begins with which the events occurred. It
able expectation of the parties at the occurring with regularity. is not enough for Gulf to allege
time of contract. that because the mechanical
For another example, periodic Even presuming that Gulf’s rou repairs were listed in the contract,
flooding of the Mississippi River has tine mechanical repairs were with they were force majeure events. Nor
been so frequent that it was not in the ambit of the force majeure is it enough for Gulf to defend the
defined as a force majeure. The clause, their frequent, almost pre inclusion of such repairs in the
Supreme Court opined: dictable, occurrence takes them contract clause because it is unable
PROBATE & PROPERTY � MARCH/APRIL 2007 11
enumerated events, such as natural ing that banks under its jurisdiction
disasters, are a foreseeable possibili consider the possible effects of epi
ty, especially in Southern California demics and what safeguards they
(albeit no one can be sure when ‘the should take. Board of Governors of
Big One’ will hit). But they also are the Federal Reserve System,
‘beyond the reasonable control of Interagency Advisory on Influenza
either party.’” Id. at 1113. The court Pandemic Preparedness, 2006 WL
advised the parties to expressly allo 851834 (F.R.B.).
cate the risk rather than rely on a
boilerplate clause enumerating an Notice of the Force
extensive list of events that would be Majeure Event
so unlikely to occur as to make them To evaluate the actions of the party
“qualitatively different” and further seeking relief, it is helpful for the
noted that in the absence of such other party to have a specific lease
allocation, “only governmental requirement that one party notify the
action not previously contemplated other party promptly after it
could qualify as force majeure.” Id. at becomes aware of the force majeure
1113–14. Although no cases apply event, stating the facts on which
this frequency precedent to hurri relief is being claimed, the details of
Requiring notice canes, Watson Laboratories indicates the actions being taken by the first
that courts may still provide protec party, and the anticipated date on
to the other lease tion to parties when natural disasters which the performance is expected to
party of the occur. be accomplished. This notice require
ment also permits the affected party
inability to perform Other Causes to consider its alternatives for self-
because of a force Should the lease include all non- help or added payment, relocation,
weather problems as force majeure or simply for claiming that the efforts
majeure event events? In the construction context, being undertaken are insufficient in
may be just as the Associated General Contractors the circumstances.
(AGC) “Standard Form of Requiring notice to the other lease
important as careful Agreement and General Conditions party of the inability to perform
drafting of the Between Owner and Contractor because of a force majeure event may
(Where the Contract Price Is a Lump be just as important as careful draft
rest of the force Sum)” excludes from force majeure ing of the rest of the force majeure
majeure clause. strikes involving only the contractor clause. The anxiety created by a
on the theory that the contractor for storm and a related mass evacuation
its own benefit cannot impose the may cause the parties to forget the
to determine the volumes of gas detriment on the owner. AGC Doc. whereabouts of the lease or be
which might be lost under such 200 ¶ 6.3 (2000 ed.). But some con unable to fulfill their notice obliga
circumstances. tracts go further and include enu tions under the lease.
merations such as “delay attributable Courts generally have upheld the
Id. at 454. to strikes, labor troubles, or any procedural requirements that accom
In the case of natural disasters, cause whatsoever including, but not pany the force majeure clause in con
however, the court may find that, limited to . . . .” This clause goes far tracts so that the force majeure clause
although a force majeure event beyond the quite broad standard def should explicitly state what the non-
occurs with frequency, in any given inition of “beyond landlord’s reason performing party must do to proper
instance the event was “beyond the able control.” The AGC’s form also ly invoke the clause. For example,
reasonable control of the parties.” In expressly includes as force majeure the clause may require that the non-
Watson Labs, Inc. v. Rhone-Poulenc events delay caused by governmen performing party give notice of its
Rorer, Inc., 178 F. Supp. 2d 1099, 1114 tal agencies, unusual transportation inability to perform to the other
(C.D. Cal. 2001), the court pointed events, and unavoidable accidents or party. When notice is required, the
out that although natural disasters circumstances. A drafter crafting a drafter should state whether notice
may be foreseeable events, they are broad standard might also include becomes effective on dispatch or on
beyond the reasonable control of epidemics. In fact, the Office of Thrift receipt. In addition, the drafter
either party and performance is Supervision of the Comptroller of the should address other notice issues,
excused under the force majeure pro Currency issued an interagency advi including (1) time limits, (2) whether
vision, stating: “True, some of the sory on March 15, 2006, recommend notice must be written, (3) the conse
12 PROBATE & PROPERTY � MARCH/APRIL 2007
quences of failure to give notice, and the case of natural disasters when it party on constructive notice of a
(4) when the excusing event is would be deemed appropriate. force majeure event. To date, how
deemed to have occurred and, thus, It is more difficult to define notice ever, there is no precedent regarding
when the duty to give notice arises. requirements when a natural disaster constructive notice in the context of
Parties may include a constructive is involved because these events are force majeure provisions or natural
notice requirement, particularly in obvious and may place the other disasters. After Katrina, businesses
Sample Force Majeure Clauses
An Interesting Baseball Stadium Lease Clause,
have been or shall be affected by war or other emergency or gen
But with No Notice and Diligence Concepts
eral market conditions or otherwise; provided, however, that this
“Force Majeure” means the occurrence of any of the following Section shall not apply to, and nothing contained in this Section
for the period of time, if any, that the performance of a Party’s shall affect or impair either party’s rights and remedies pursuant
material obligations under this Lease is actually, materially, to, Articles [fire, condemnation, cure, abatement] hereof, or any
and reasonably delayed or prevented thereby: acts of God, offset rights or rights to credit expressly given to Tenant in this
lock-outs, acts of the public enemy, the confiscation or seizure Lease, and further, in no event shall any delay or failure of pay
by any government or public authority (excluding the stadi ment of rent or other money, whatever the cause, be either consid
um owner authority), insurrections, wars or war-like action ered as a reason beyond a party’s reasonable control or to any
(whether actual and pending or expected), arrests or other extent excused by operation of this Section.
restraints of government (civil or military), blockades, embar
A Clause with Diligence and Notice
goes, strikes, labor unrest or disputes, unavailability of labor
or materials, epidemics, landslides, lightning, earthquakes, Except as otherwise expressly set forth herein, in the event either
fires, hurricanes, storms, floods, wash-outs, explosions, any party hereto shall be delayed or hindered in, or prevented from,
delays occasioned by arbitration actions and proceedings the performance of any act or rendering any service required
under the Arbitration Procedures specified in this Lease, civil under this Lease, by reason of strikes, inability to procure materi
disturbance or disobedience, riot, sabotage, terrorism, threats als, failure of power, restrictive governmental laws or regulations,
of sabotage or terrorism or any other cause, whether of the riot, insurrection, war or other reasons of a similar or dissimilar
kind herein enumerated or otherwise, that is not within the nature which are beyond the reasonable control of the party (col
reasonable anticipation or control of the Party claiming the lectively referred to herein as “Event”), then the performance of
right to delay performance on account of such occurrence and any such act or rendering of any such service shall be excused for
which, in any event, is not a result of the intentional act, negli the period of the resulting delay and the period of the perfor
gence or willful misconduct of the Party claiming the right to mance or rendering shall be extended for a period equivalent to
delay performance on account of such occurrence. As to the period of such delay. Notwithstanding the foregoing, this
Landlord, actions of the Landlord shall not be considered paragraph shall not be applied so as to excuse or delay payment
actions of a Governmental Authority for purposes of Force of any monies by one party to the other, including rent.
Majeure. Notwithstanding the foregoing, “Force Majeure” Except in the instance described in a provision of this Lease
shall not include (i) any strikes or lock-outs or other labor dis expressly referring to this Section, nothing contained in this
putes related to Tenant’s trade organizations, or (ii) economic Section shall be applied so as to: (i) permit any delay or time
hardship. extension due to shortage of funds; or (ii) excuse any nonpayment
or delay in payment of rent; or (iii) limit either party’s rights
A Modest Clause under right-to-cure-other’s-default as if this Section were not con
This Lease and the obligation of Tenant to pay rent hereunder, tained in this Lease. It shall be a condition to either party’s claim
and the obligation of each party to perform and comply with of the benefit of this Section that such party (“Claiming Party”)
all of the other covenants and agreements hereunder on its notify the other in writing within 48 hours after the occurrence of
part to be performed or complied with, shall not be affected or the Event, and within 24 hours after request shall advise the other
excused because of the other party’s delay or failure to per party in writing of its good faith estimate of the time which will
form any of the covenants and agreements hereunder on the be required until the delay is ended. Claiming Party shall have no
part of the other to be performed for reasons beyond the rea liability to the other if the good faith estimated time of cure of the
sonable control of such other party which reasons are general delay is not met but Claiming Party shall advise the other in writ
ly being encountered at the time in Comparable Buildings ing whenever Claiming Party learns that any material additional
[defined somewhere in the Lease, may or may not be appro time shall be required (and promptly upon request shall advise
priate here], including, without limiting the generality of the the other party of any latest estimated time of cure of the delay
foregoing, strikes, lockouts or labor problems, governmental and the actions being taken to cure the delay). ■
preemption, laws, conditions of supply and demand which
PROBATE & PROPERTY � MARCH/APRIL 2007 13
and individuals were scattered all majeure clause, both parties should Offering an economic incentive for
over the country either because they consider providing alternative places the parties to perform their obligations
evacuated before the storm hit or or means of giving and receiving may be the most effective way to
were forced to leave in its aftermath. notice to cover that possibility and ensure good faith efforts to perform.
Normal mail service, private mailing may want to consider constructive For example, a lease might provide:
services, phone lines, and Internet notice for a catastrophic event. For “The affected party shall be entitled to
access were down for weeks and example, the lease might provide: an abatement of rent during the period
even months in some areas. In some “In case of interruption of all meth the leased premises are unable to be
cases, the address designated for ods of giving notice set forth in this used and first party is excused from
receiving notice of the force majeure Section, notice shall be deemed given performing its obligations under this
event was destroyed in the hurricane on the second day of reasonably section.”
as well. prominent news coverage of the Statutory codes also may provide
The effects of a hurricane are not force majeure event reasonably able some guidance for a standard, but
unique; an earthquake, flood, or sim to be recognized as affecting the such guidance may be limited.
ilar catastrophic event widespread premises.” This might equally benefit Twenty-three states mention force
over a certain geographical area a tenant seeking to claim abatement, majeure at some point in their codes,
could have the same effects. which requires notice before it although most only make a passing
Therefore, in negotiating the force becomes effective. mention of the concept without defin
AIA Form A201 requires notice of ing the term. Only a few states have
a delay claim within 21 days after the codified their standard of performance
event occurs or the contractor for force majeure clauses. Even when
Offering an becomes aware of its effect on the codified, the provisions usually refer
to a very specific type of lease or a par
economic incentive job. AIA Form 201 ¶ 4.3.2. The form
provides that most notices are to ticular type of party. Furthermore, no
for the parties to include estimated cost and the proba notice requirements are established by
statute for force majeure.
perform their ble effect of delay on scheduled dates.
Id. ¶ 4.3.7.1. The 21-day provision is Under Kentucky law, a party is
obligations may be intended to give the contractor time required to use good faith in invoking
force majeure. Good faith is honesty in
the most effective to determine the effects of the delay,
but that is a long time in a leasing fact and the observance of reasonable
way to ensure situation. The Associated General commercial standards of fair dealing. Ky.
Rev. Stat. Ann. § 355.1-201(2)(t). A party
good faith efforts Contractors has a comparable form
contract that calls for a 14-day notice is also under the obligation to eliminate
to perform. of the consequences but prompt the disabling effects of such force
notice of the fact of delay. AGC Doc. majeure as soon as, and to the extent,
200 ¶ 6.3. possible. Ky. Util. Co. v. South East Coal
Co., 836 S.W.2d 392, 401 (Ky. 1992).
Performance Standards Texas law permits parties to deter
Although many clauses have stan mine the standard by which the per
dards that carve out exceptions to formance of contractual obligations
the excuse for nonperformance related to the sale of goods is to be
because of an event or act of force measured if such standards are not
majeure, such as a “party’s negli manifestly unreasonable. Tex. Bus. &
gence, willful actions, or breach of Com. Code § 2.615. This limitation is
contract,” additional language could deferentially applied to the contracts
be used to establish a higher stan of sophisticated parties. For example,
dard by requiring each party to make this section did not preclude parties to
good faith efforts to perform an ethylene delivery contract from
notwithstanding the existence of a agreeing to a broader force majeure
force majeure. In addition, holding clause, which excused an oil com
the party to accepted or codified pany’s nonperformance as a result of
industry standards for the particular explosion, irrespective of whether the
type of lease (such as banking, health explosion was beyond the oil com
care, and so on) also may be effective pany’s reasonable control. PPG Indus.
when such a standard is either Inc. v. Shell Oil Co., 919 F.2d 17 (5th Cir.
acknowledged by both parties or 1990). Texas, however, has codified a
universally accepted. standard for utility companies that, in
14 PROBATE & PROPERTY � MARCH/APRIL 2007
the event the parties do not elect a • The affected party should seek rebuild at a reasonably foreseeable
standard, limits the application of a the other’s agreement to incur cost, unknown or escalating rebuild
force majeure clause to situations in effort and cost. ing costs after Katrina continue to
which regulatory acts, natural disas • The affected party should seek prevent some lessors from fulfilling
ters, war, and even terrorism, create a the right to be fully informed their obligations.
predetermined cost increase or revenue and updated. Even buildings that were damaged
decrease for the affected party of more • The affected party should seek but not destroyed are expensive to
than 10% in any calendar year. Tex. the right to cure with payment repair because of increases in the cost
Util. Code. Ann. § 39.055. by the other party of all or part of building materials, transportation
Georgia codified a force majeure of the cost. of such materials, and labor short
relief standard for taxpayers in the ages. If a lessor is obligated to repair
event they fail to meet their number of Sample force majeure clauses are a damaged building but is locked in
employee maintenance requirements suggested in the sidebar on page 13. at the same rental rates, the lease
for any taxable year within a recapture becomes less economically desirable.
period. It defines force majeure as Further Solutions Therefore, the lessor may seek to ter
(1) explosions, implosions, fires, confla Because both parties may be resistant minate a pre-storm lease by claiming
grations, accidents, or contamination; to changes in an existing lease that an excuse for performance under a
(2) unusual and unforeseeable weather would shift the risk, a better solution force majeure clause to attempt to
conditions; (3) acts of war (whether or than relying on the force majeure sign a new tenant at the new rental
not declared), carnage, blockade, or clause itself may be business inter rates.
embargo; (4) acts of public enemy, acts ruption insurance. The main concern Lessors and lessees should negoti
or threats of terrorism, or threats from under a policy is that the claimed ate protective language in the lease
terrorists, riot, or public disorder; event be a “covered risk.” Many for both of their interests. Obviously,
(5) strikes or other labor disturbances; businesses in areas affected by a lessee with little or no negotiating
or (6) expropriation, requisition, confis Hurricane Katrina are dealing with power, such as a residential tenant,
cation, impoundment, seizure, nation whether their business was inter may have to rely on his or her land
alization, or compulsory acquisition of rupted by wind or flood. Flood is lord’s fair dealing, but a sophisticated
the site of a qualified project or any often excluded from property insur lessee should negotiate a clause obli
part thereof. Ga. Code Ann. § 48-7 ance policies (even special form poli gating the landlord to rebuild at post-
40.24(a)(3). More interesting, however, cies (formerly called ”all risk”)), storm costs with perhaps a percent
is Georgia’s exception that provides although a storm surge is argued by age increase in rent to cover all or
that force majeure shall not include both sides as being or not being part some of the increase.
any event or circumstance that could of a hurricane. Lessors, lessees, and
have been prevented, overcome, or their lawyers should keep current Conclusion
remedied in whole or in part through with insurance litigation in Lawyers, lessors, and lessees should
the exercise of reasonable diligence and Mississippi and Louisiana involving use the lessons from recent cata
due care, nor shall such term include coverage for damage resulting from strophic events, particularly the hur
the unavailability of funds. Id. the wind/flood storm surge in busi ricanes of 2005, to review their leases
As with all other force majeure pro ness interruption insurance policies and analyze their positions should
visions, the standard of performance and language referencing such poli the force majeure clause be exercised.
may be negotiated in the contract, but cies within their leases. Drafting an effective force majeure
the parties may take guidance from an clause in a lease is dependent on the
applicable state code or from industry Post-disaster Relationship unique considerations and risks that
standards. The post-disaster relationship exist for the parties in different parts
between landlord and tenant of the country. Inclusion of specific
Drafting the Clause deserves special attention after a events in the force majeure clause
in General mass catastrophe. In connection with demonstrates the intent of the par
The basic principles to consider in and in addition to the force majeure ties, which should be to the drafter’s
drafting force majeure clauses are: clause, the lease should address benefit if a dispute becomes litigious.
what happens if a building is dam The drafter and other parties, howev
• The clause should list as many aged but not totally destroyed. Post- er, should be mindful of the likeli
likely events (other than very Katrina office space and housing hood of such events occurring.
remote causes) as possible. continue to be in high demand, and Review and careful drafting of the
• The clause should include some as a result, rental rates have notice provisions related to the force
version of “all other causes.” increased to varying degrees. Unlike majeure clause is also necessary to
• The affected party should seek to a contained event affecting leased fully effectuate a successful exercise
limit or tighten the definition. premises where the landlord could of the clause. ■
PROBATE & PROPERTY � MARCH/APRIL 2007 15
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