Force Majeure: Allocating Risk in Commercial Real Estate Agreements in the Wake of COVID-19

Chansom Pantip / Shutterstock

After living in a pandemic for more than a year, the question arises: How has this affected the way in which commercial real estate transactions should be negotiated and documented? The negative effects on the already distressed retail and office markets are obvious. There is little need to maintain a storefront if customers cannot or do not want to shop there. The need for Facetime in an office setting has proven overrated. When a tenant’s business is no longer profitable for reasons beyond their control, how should that be addressed in a lease?

The term force majeure literally refers to a “superior force” – one that is “neither anticipated nor controlled”. New Jersey Dept. of Envtl. Prot. V. Bayshore Reg’l Sewerage Auth.340 NJ super. 166, 168 n.1 (App. Div. 2001). A force majeure clause provides a means by which the contracting parties take certain uncontrollable events or effects that make performance impossible into consideration in advance and determine a party’s obligation to perform if such events do not occur. Factor V. Pantages390 NJ super. 227, 231- 32 (App. Div. 2007). At least a certain amount of anticipation is therefore required when drawing up this joint contract term.