Force Majeure and COVID-19 in the Landlord–Tenant Context

The ongoing coronavirus (COVID-19) pandemic is causing major disruptions in the world. At the same time, it is forcing many people to revisit the force majeure clauses of their contracts to determine what impact, if any, the pandemic will have on their contractual and business relationships. This article examines the interplay between the COVID-19 pandemic and force majeure, with a special emphasis on Louisiana lease law.

Key Points:

• First, read your lease. If there is a force majeure clause, then the terms of the lease generally control and will determine whether an event qualifies as a force majeure event. If your lease contains a force majeure clause, but it does not specifically list an epidemic or pandemic as a qualifying force majeure event, then a court may find that the pandemic falls under another event, such as “Act of God.” Government action is another relevant event that may constitute a force majeure event.
• The lessor’s obligation to protect the lessee’s peaceful possession is a rule of public order, and, therefore, cannot be waived by a force majeure clause. In other words, if the lessor breaches his obligation to protect the lessee’s peaceful possession, then the lessee’s obligation to pay rent ceases. No “hell or high water” clause (i.e., a clause purporting to stater that the obligation to pay rent shall never cease) can resurrect that obligation. LFP note: Incomplete sentence. Needs explanation.
• For a lessor to breach his obligation to protect the lessee’s peaceful possession, there must be a disturbance in fact, which requires, among other things, some form of a physical act, like changing the locks on the leased premises. Arguably, Governor John Bel Edwards’s Stay-at-Home Order, which significantly curtails the operation of several types of businesses, does not constitute a physical act by itself. However, if combined with law enforcement force, then the lessee’s peaceable possession may be disturbed.
• The lessee’s obligation to pay rent does not fit neatly into the doctrine of force majeure, because it is difficult for the lessee’s ability to pay a sum of money to be truly “impossible.” However, if the use of the leased thing becomes substantially impaired by circumstances external to the leased property, such as government action, then the lessee may obtain dissolution of the lease under La. Civ. Code art. 2715.

What is “force majeure”?

Force majeure means “superior force” in French. In Louisiana, the doctrine of force majeure provides that an obligor is not liable for his failure to perform when it is caused by a fortuitous event that makes performance impossible.[1] In essence, force majeure excuses an obligor’s nonperformance. The doctrine is one of several manners in which obligations are extinguished.

Is the coronavirus pandemic a force majeure event?

Whether the coronavirus pandemic qualifies as a force majeure event depends on the individual facts and circumstances of each case and the terms of the contract at issue. However, there are a few guiding principles to follow. First, you should look to the terms of the contract itself to determine whether it contains a force majeure clause. If so, then the terms of the contract will likely govern whether COVID-19 qualifies as a force majeure event. Take, for example, the following sample force majeure language:

The parties hereto are relieved of any liability if unable to meet the terms and conditions of this Agreement due to any Act of God, riots, epidemics, strikes, governmental control, or any act or order which is beyond the control of the party not in compliance; provided that it takes all reasonable steps practical and necessary to effect prompt resumption of its responsibilities hereunder.

This clause delineates what events qualify as force majeure events: “Acts of God,” riots, epidemics, strikes, and governmental control. This clause also contains a catch-all provision, covering all other events beyond the parties’ control. Under this language, a party’s failure to fulfill an obligation under the contract due to the coronavirus pandemic, which is a type of epidemic,[2] may qualify as a force majeure event. Of course, there must be a causal connection between the failure to perform and the force majeure event; that is, the event, such as the coronavirus pandemic, must have made it impossible for the obligor to perform under the contract. The obligor may not be excused from payment simply because there is a pandemic.

 A word of caution, however: courts may, under statutory construction rules, the catch-all provision to only those events that are of the same or similar kind as the specific events written out in the clause. So, for example, if a clause contains a list of natural disaster events—such as tornados, hurricanes, and earthquakes—in addition to a catch-all provision, then a court may interpret the catch-all provision as only including other natural disaster events, like floods for example, as opposed to other fortuitous events, like pandemics, civil disturbances or government action.

What if the contractual force majeure clause doesn’t specifically list epidemics or pandemics as a qualifying force majeure event? In such a case, a court may try to fit the event under an existing category, such as “Act of God,” which is generally defined as “[a]n overwhelming, unpreventable event caused exclusively by forces of nature, such as an earthquake, flood, or tornado.”[3] Pandemics also often invoke some form of government action, and the COVID-19 pandemic is no exception. Many states, including Louisiana, have enacted sweeping measures in an effort to curtail the spread of the virus, including the closure of schools, bars, and other public places. As always, there must be a causal link between the government action and the failure to perform.

Additionally, it is important to determine whether your force majeure clause actually excuses performance of an obligation or if it merely delays or suspends the time period within which performance is to be rendered. Continuing from the sample clause above, the parties’ obligations are excused if a force majeure event occurs. However, not every force majeure clause is as generous. Instead, some contracts contain a narrower version that merely delays the performance of a party’s obligation until the force majeure event ends.

Do I have to give notice if a force majeure event occurs?

This depends on the language of your contract. Many contracts have special provisions requiring a party to give notice to the other party if a force majeure event occurs, thereby excusing a party’s performance. Failure to give this required notice or to give it within a specified time frame may forfeit or waive the breaching party’s ability to rely on force majeure as a defense to nonperformance. Therefore, it is important to carefully analyze your contract to determine whether it contains any special notice requirements, and, if so, how and when that notice is to be communicated to the other party. For instance, a simple email or phone call may not suffice. Instead, a contract may require notice by written mail to a specific recipient.

What if there is no force majeure clause in my contract?

Force majeure clauses are essentially “written into” each Louisiana contract. Absent contrary an express force majeure provision in a contract, the default rules in the Louisiana Civil Code govern the doctrine of force majeure.[4] Louisiana Civil Code article 1873 states: “An obligor is not liable for his failure to perform when it is caused by a fortuitous event that makes performance impossible.” Thus, for an event to be a force majeure event, there must be (1) a “fortuitous event” (2) that renders performance “impossible.”

The Code defines a fortuitous event as “one that, at the time the contract was made, could not have been reasonably foreseen.”[5] “Louisiana courts have shown more concern for the reasonableness of the parties’ foresight in a given situation than for the objective foreseeability of a particular event.”[6] Whether the COVID-19 pandemic was unforeseeable depends on when the contract was entered into. For instance, the pandemic was likely more foreseeable for contracts entered into at the turn of the decade as the virus began to spread, while the pandemic was probably less foreseeable from parties’ viewpoints for contracts that were executed well before the novel virus emerged.

Additionally, the fortuitous event must have made performance impossible. This is a difficult standard to reach. Merely because performance becomes more difficult or more onerous does not excuse an obligor’s performance.[7] Instead, force majeure excuses an obligor “only when he encountered an insurmountable obstacle that made the performance actually impossible.”[8] If the entire performance is rendered impossible, then the contract is dissolved.[9] If performance is only rendered impossible in part, then a court may either reduce the other party’s counter-performance proportionally or dissolve the contract, depending on the circumstances.[10]

In any event, there are a few categories of events that are considered hallmark force majeure events, such as wars, strikes, and government action. Particularly relevant in the context of the COVID-19 pandemic is the last category. A legislative measure or an executive order can constitute a force majeure event if it renders unlawful, and therefore legally impossible, the performance of an obligation.[11] For example, under a proclamation issued by Governor John Bel Edwards, all gatherings in excess of 10 people are banned, and all bars, movie theaters, gyms, and other nonessential places of public accommodation are closed until April 30, 2020.[12] Using the Stay-at-Home Order as an example, if a patron purchased an annual membership to a gym in exchange for 24/7 access to the gym facility, then the gym would likely be successful in arguing that its performance has been rendered partially impossible due to a force majeure event, that is, the government action making it unlawful for a gym to operate.

Are there special considerations in the context of a lease?

Of course. On the one hand, the COVID-19 pandemic poses serious risks to the health and well-being of landlords, tenants, and the patrons of tenants’ businesses. Combined with the sweeping nature of the government’s reaction to the pandemic, landlords and tenants are left to deal with unique and often unpredictable problems. Special considerations of the lessor’s and lessee’s obligations are discussed in-depth below.

How does force majeure affect the lessor’s obligation to protect lessee’s peaceful possession?

While the parties’ obligations may change from lease to lease, there are certain bedrock obligations. One of the principal obligations owed by the lessor is to protect the lessee’s peaceful possession of the leased premises during the term of the lease as long as the lessee fulfills his or her obligations.[13] Specifically, the lessor warrants the lessee’s peaceful possession of the leased thing against any disturbance caused by a person who asserts ownership, or right to possession of, or any other right in the thing.[14] If a disturbance is such that the lessee can no longer use the premises for the intended use, the lessor has breached his obligation to maintain the lessee in peaceful possession.[15]

In this context, a “disturbance” means a disturbance in fact, which is an eviction “or any other physical act which prevents the possessor of immovable property or of a real right therein from enjoying his possession quietly, or which throws any obstacle in the way of that enjoyment.”[16] Whatever the act is, it must be physical. The governor’s Stay-at-Home Order alone is not a physical act, and, therefore, likely does not constitute a disturbance. However, if a lessee of a bar attempted to open the bar for business but was prevented from doing so by a law enforcement officer, then the lessee’s peaceful possession has obviously been disturbed by a physical act. In such a case, a lessor may defend against his failure to protect the lessee’s peaceful possession by arguing that government action amounted to a force majeure event.

Unfortunately, the issue is not entirely clear in some situations. For example, the governor’s Stay-at-Home Order prohibits dine-in patrons at all Louisiana restaurants, but it still permits take-out and delivery orders. In this situation, has the government action prevented a restaurateur-lessee from using the premises for its intended use? On the one hand, the lessee can still use the leased premises to prepare and cook food and to sell that food to patrons, albeit in a less-than-traditional manner. On the other hand, the lessee probably did not intend to rent the location solely as a 100% delivery location.

Finally, it is important to note that the lessor’s obligation to protect the lessee’s peaceful possession is a matter of public policy.[17] Accordingly, it cannot be waived by a force majeure clause.[18] Should the lessor fail to provide the lessee with peaceable possession, the lessee’s obligation to pay rent ceases, and no “hell or high water” clause can resurrect that obligation.[19]

How does force majeure affect the lessee’s obligation to pay rent?

With respect to the lessee, the lessee’s principal obligation in any lease is to pay the rent to the lessor.[20] The obligation to pay money does not fit neatly into the doctrine of force majeure. According to one scholar, when the obligation is to give a sum of money, such as rent, “it is hard to think of circumstances that would reduce an obligor to an absolute impossibility to perform.”[21] Thus, the difficulty with excusing a lessee’s obligation to pay rent lies in the “impossibility” element of the force majeure doctrine.

In the absence of a contrary agreement, however, the lessee may find some relief under La. Civ. Code art. 2715, which gives the lessee an opportunity to obtain a diminution (reduction) of the rent or dissolution of the lease if “the thing is partially destroyed, lost, or expropriated, or its use is otherwise substantially impaired . . . .” However, if the impairment of the use of the leased thing was caused by circumstances external to the leased thing, then the lessee is only entitled to a dissolution of the lease, and not a diminution of the rent.[22] Examples of externalities include subsequent governmental regulations or zoning restrictions that impose substantial restrictions on the use of the leased property.[23] Accordingly, the restrictions imposed by the governor’s Stay-at-Home Order are likely classified as “circumstances external to the leased thing,” thereby foreclosing a lessee from obtaining a diminution in the rent, absent some other fortuitous event that renders his obligation to pay rent impossible.

Conclusion

The coronavirus pandemic will continue to cause major disruptions throughout the world and Louisiana for the foreseeable future. Its impact on commercial transactions, everyday contracts, and leases will differ from situation to situation. However, force majeure is a timely and relevant topic that requires special attention during the crisis. As always, you should consult an attorney regarding your individual situation.