Commercial leases allow businesses to control their operating expenses and better ensure continued access to a facility. They also protect landlords by establishing certain restrictions on tenant behavior and establishing tenant responsibilities related to rent and facility maintenance.
Many commercial leases include custom language intended to protect landlords in a variety of unusual but potentially costly scenarios. Negotiating the details of the agreement can be a lengthy process, especially if tenants want special terms intended to protect their businesses. Sometimes, tenants push for the inclusion of certain specific terms.
Force majeure clauses are popular requests among commercial tenants, as they protect organizations from ongoing rent responsibilities in scenarios where the company cannot operate. Landlords can also benefit from the inclusion of force majeure clauses in the contracts they sign with commercial tenants.
What a force majeure clause does
Some people call a force majeure clause an “act of God clause.” It is essentially a last line of protection for businesses that can no longer continue operating due to uncontrollable circumstances. Natural disasters, acts of terrorism and lengthy supply chain disruption can all potentially trigger a force majeure clause in a commercial lease.
Such clauses allow commercial tenants to essentially eliminate a commercial lease when they cannot continue using the rented space due to circumstances outside of their control. They can end the lease years early in some cases or negotiate with the landlord to cease rent payments until they can continue operating the company.
While such terms could be somewhat disadvantageous to landlords, it is possible to make them mutually beneficial. The landlord can also have protection from the obligation to continue providing rental space or the maintenance services they provide in unusual and extreme circumstances. In some cases, landlords may add force majeure clauses that protect them as the landlord to the contract without negotiating special terms with a tenant.
When a tenant requests the addition of a force majeure clause, the landlord renting a commercial unit can always limit the scenarios in which the tenant can invoke the clause. Imposing very clear standards, such as disruptions that last a certain number of months, can help prevent the abuse of clauses added to a commercial lease in good faith.
Commercial landlords often need to carefully consider the unique risks associated with a specific property and the proposed operations of a business tenant. Exploring unique contract terms can help landlords mitigate operational risks.