Knucklehead season is underway. A mattress company sent a “firm” letter to my landlord client announcing it was shorting its monthly rent installments for a while, starting next month. No description of by how much Tenant is discounting rent, or for how long – it’s just announcing “this is happening.”
The problem is that a second virus, called misinformation, sweeps the American commercial leasing landscape. This virus has settled on one lease provision known as the force majeure clause. It begins with the false believe that the clause essentially means, “if you’re in a jam, you don’t have to pay rent.” The text of the force majeure clause in a lease may vary radically from one deal to the next. If you’re a tenant, you may think you understand the text of the clause, but you may badly be mistaken. Here’s the clause, extracted from the lease I’m commenting on:
Inability to Perform and Force Majeure: EXCEPT as to the Target Date AND THE TIMELY PAYMENT OF MONETARY OBLIGATIONS HEREUNDER, Landlord and/or Tenant shall be excused for the period of any delay and neither party shall be deemed in default with respect to the performance of any of the terms, covenants, and conditions of this Lease to be performed by it if any failure of its performance shall be due to any strike, lockout, civil commotion, war, warlike operation, invasion, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, inability to obtain any material or service, Act of God, weather, or any other cause whatsoever that is not (i) failure of financial markets, or (ii) lack of availability of funds due to cash flow problems caused by the party’s mismanagement or over encumbrance of its resources (including failure of either party to supply necessary data or instructions) beyond the reasonable control of such party, and the time for performance by such party shall be extended by the period of delay resulting from or due to any of said causes.
See the problem? Mattress Guys agreed that force majeure won’t excuse the ongoing payment of its rent obligations – in writing!! In fact, there’s about 3 other instances of bad language for the Tenant in this paragraph. But, don’t let that keep you from taking an aggressive position! There’s nothing to be gained by talking to your Landlord and requesting some relief, when you can punch your Landlord in the nose in a letter – right? Well, no, in case my sarcasm isn’t obvious; there is much to be gained by communicating with your leasing counter-party.
By the way, a plague of locusts may be an Act of God, but poor human dietary and hygiene habits, combined with failure of government and the healthcare infrastructure, resulting in a pandemic does not an Act of God make. There’s no “out” in the quoted lease’s text for a pandemic. Not, at least, until the applicable local government declares that shopping at retail stores other than food markets is not permitted under any circumstances. Were it not for the capitalized words in the clause offered, the shutdown of shopping might qualify as a force majeure event under “governmental regulations or controls” beyond Tenant’s reasonable control. That hasn’t happened in Arizona and a majority of states, although there’s a trend line apparent.
More consequentially, by the way, Mattress Guys just repudiated the primary term of the lease, the rent covenant. The New York Court of Appeals once succinctly stated: “An anticipatory breach of contract by a promisor [a promising party] is a repudiation of a contractual duty before the time fixed in the contract for its performance has arrived.” I’m not paying your rent next month, expressed in writing, is an anticipatory breach.
But words of caution: First, if the Landlord regards Tenant’s apparent repudiation as an anticipatory repudiation, terminates Landlord’s own performance (such as by locking out the Tenant before the next installment of rent is due) and sues for the breach, the Landlord is in jeopardy of being found to have breached, if the court determines the apparent repudiation was not sufficiently unequivocal to constitute an anticipatory repudiation justifying Landlord’s non-performance. (A Landlord with a squishier lease than the quoted one above may have to seek clarification before going nuclear on the Tenant, no matter how incensed the Landlord becomes upon receiving a knucklehead communication.)
Second, A party who has repudiated its obligations under the contract may nevertheless retract its repudiation until the other party has terminated the contract or materially changed its position in reliance on the repudiation. Better the parties should keep talking and trying to accommodate one another, to avoid these quagmires.