Updates to Force Majeure in Commercial Real Estate Contracts

The COVID-19 has upended nearly every aspect of life this year, and commercial real estate has felt these effects in all sectors. One of the changes coming to CRE as we move through the pandemic, and in the years to come is how “Force Majeure” language in contracts will be updated.

In this video, McGraw Commercial Properties’ Neil Dailey sits down with attorney Rich Marshall to discuss the way in which Force Majeure language is changing, and how it is affecting commercial real estate. Here are the highlights:

What is Force Mejeure?

The term, Force Majeure, is a French phrase used to denote: an irresistible compulsion or greater force, has caused a failure to fulfill a contract. In legal terms, an there is an unforeseeable circumstances that has prevented someone from fulfilling their obligations in a contract. By and large, these are the kind of natural disasters that are referred to as “Acts of God.”

These clauses typically appear at the end of a document with rather vague language. With the global pandemic causing so much chaos, many have cited the COVID-19 crisis as a Force Majeure. However, there are several ongoing disputes as to whether the pandemic really counts as a Force Majeure event.

What Are the Implications?

Due to the vagueness inherent in Force Majeure clauses, and the challenges that curcumstances like the COVID-19 pandemic present, we are seeing people start to revisit their clauses. In our conversation today, Rich suggests being as specific as possible on what things would be covered by Force Majeure when writing your contrats moving forward. Adding things that would be relevant to your industry like “pandemics”, “cyber attacks”, and a host of other 21st Century issues is crucial.

It could also be wise to add things that would not be covered such as “payment obligations”, etc. Creative language for Force Majeure clauses in CRE contracts are becoming more common, and we are already seeing things trend toward specifically listing “Pandemics” in the language.