The frequently neglected “Force Majeure” contract clause in commercial real estate is a crucial aspect that demands attention. With the increasing occurrence of global events like pandemics, natural disasters, and geopolitical conflicts, the relevance of force majeure clauses has grown. These events can disrupt supply chains, labor availability, and business operations, making the inclusion and understanding of such clauses more pertinent than ever.
What is Force Majeure?
The legal definition of “force majeure” varies based on jurisdiction and the context in which it’s used. However, a general definition is: an extraordinary event or circumstance beyond the control of the parties involved, such as a war, strike, riot, crime, or a natural disaster such as an earthquake or hurricane. These events are often referred to as “acts of God.” Force majeure can also include man-made disasters such as terrorism. Under a force majeure clause in a commercial real estate contract, if such events prevent a party from fulfilling their contractual obligations, that party may be excused from those obligations without penalty. It’s noteworthy that the exact interpretation and implementation of a force majeure clause often depend on the specific language contained in the contract wording.
Key Elements of Force Majeure:
- Unforeseeability: Some force majeure clauses require the event to be unforeseeable. However, as noted in some cases like TEC Olmos, LLC v. ConocoPhillips Co., a clause does not necessarily have to include an unforeseeability requirement unless it is explicitly stated.
- Beyond Control: Force majeure events are those that the affected party could not have prevented even with reasonable care.
- Impediment to Performance: The event must be such that it significantly impacts a party’s ability to perform its obligations under the contract.
- Notification Requirements: Many force majeure clauses also contain language requiring the impacted party to notify the other party of the event and any expected delays.
- Mitigation Obligations: Some clauses may require parties to make reasonable efforts to prevent or reduce the effects of the force majeure event.
It’s important to note that the specific details and components of a force majeure clause can vary greatly based on the contract and jurisdiction. Therefore, the clause should be carefully evaluated on a case-by-case basis.
Contractual and Legal Considerations:
- Specific Language and Context: The specific language and overall context of the contract are crucial in interpreting a force majeure clause. These clauses are intended to relieve a party from obligations when performance is hindered by uncontrollable circumstances.
- Limitations: A force majeure clause cannot typically be invoked if the delaying condition was caused by the party claiming it or could have been averted through prudence, diligence, and care.
- Jurisdictional Variations: The interpretation of force majeure clauses can vary widely depending on the jurisdiction. What is considered a force majeure event in one legal system may not be recognized in another. Understanding these nuances is essential, especially in international contracts.
Conclusion:
Despite detailing specific events, recent cases have granted an extensive meaning to the term in commercial contracts. A well-drafted clause may not prevent legal disputes but will offer better legal positioning. Given the variability in legal definitions and the significant impact of these clauses, it’s imperative not to accept a “standard” force majeure clause blindly. Tailoring the clause to your specific contractual context and seeking competent legal advice is crucial for effective protection.
