Force Majeure Clauses and Your NJ Commercial Lease

September 30, 2013

To many commercial landlords and tenants, force majeure clauses are mere boilerplate paragraphs inserted into a commercial lease agreement. As businesses across New Jersey and New York look back upon the devastation that Hurricane Sandy wrought throughout the area nearly one year ago, it is important to understand that, like insurance policies, these clauses can be invaluable when disastrous events occur.

The phrase “force majeure” means “superior force” in French, and force majeure provisions absolve parties from performing their contractual duties when forces beyond that party’s control prevent them from performing. The law generally defines these forces as natural causes outside the intervention of man and, according to a 1983 3d Circuit Court of Appeals opinion, can include hurricanes. To meet the legal standard, the natural event (in this case, a hurricane) must directly cause the condition that rendered contractual compliance impossible, illegal or impracticable.

If the parties fail to include a force majeure clause in their lease agreement, then any dispute arising from a natural disaster-influenced non-performance falls to the standards of common law. A non-performing party would have to advance common-law defenses pertaining to impracticability and frustration of purpose. Mounting a successful defense based upon these common law concepts, as opposed to a contractual provision, is often substantially more difficult.

Force majeure paragraphs may be customized for the needs of the parties, so it is important to negotiate force majeure language that makes sense from the perspective of your business interests. Some provisions might only give a non-performing party a valid excuse if the performance is illegal or impossible, while other language may also include impracticability, as well. It is important to ensure that the force majeure language in your agreement is exactly what you want, or exactly what you and the other party negotiated. Force majeure language receives strict construction from the court, and the clause typically must expressly mention the specific force that prevented the party from performing.

As a commercial tenant or landlord, it is important understand each element of a force majeure clause. For instance, some force majeure clauses excuse many aspects of performance, but may reaffirm certain others. In a 2012 New Jersey case, 476 Grand, LLC v. Dodge of Englewood, Inc., the tenant (Dodge) asserted that Chrysler’s bankruptcy constituted a force majeure that excused it from paying rent. The court ruled that, even if the bankruptcy qualified, the landlord was nevertheless entitled to payment, because the parties inserted language stating that “[n]othing herein shall be deemed to relieve Tenant of its obligation to pay rent when due.”

Each provision in your commercial lease, even the most seemingly mundane and “boilerplate,” may ultimately prove enormously beneficial or harmful to you. That is why it is important to negotiate each element carefully and understand each paragraph of your lease completely. To get the best help for negotiating your commercial leases, contact the real estate attorneys at Samuel C. Berger, P.C. Our New Jersey real estate attorneys have the knowledge and experience to help you understand your lease and get an agreement that works for your business. Reach us online or call (201) 587-1500 or (212) 380-8117.

Blog Posts:

Four Factors to Consider When Negotiating a Commercial Real Estate Lease, New York & New Jersey Business Lawyer Blog, Aug. 14, 2013
I-9 Audits on the Rise, According to Federal Immigration Authorities, New York & New Jersey Immigration Lawyer Blog, Jan 4., 2013
Hurricane Sandy and Force Majeure for New Jersey Businesses, New York & New Jersey Business Lawyer Blog, Nov. 30, 2012