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20 May 2020

What is a Force Majeure Clause and How Does it Apply to Self Storage?


Scott Zucker

Founding Partner

Although Force Majeure clauses are not typically seen in self storage leases (due to their month to month terms), understanding the concept of a force majeure clause and its implication on your general business operations can be helpful.

A common force majeure clause would read something like this:

"Neither party to this Agreement shall be held liable for any failure or delay in the performance of its obligations arising hereunder if the cause of said failure or delay is caused by events beyond the party's control including, without limitation, acts of God, floods, earthquakes, hurricanes or other natural disasters, or civil or military disturbances, war, acts of terrorism, strikes, riots, power failures, or any such circumstances that may cause interruption or loss of power, telecommunications or others services related to the performance of said obligations under this Agreement. In the event that the impact of the unforeseen event lasts more than thirty days, either party may terminate this Agreement."

The concept of a force majeure clause, or by definition an "irresistible power", is to offer an escape from certain contractual obligations when the inability to perform is based on unavoidable events which are outside of the control of the parties involved. Based on the language of the particular contract, the occurrence of such events may either suspend the performance of the obligation for a reasonable period of time or altogether cancel the performance of the obligation. The utilization of these clauses is not common because to seek to enforce the clause would require a significant event and an effort of one of the parties, notwithstanding the occurrence of the event, to still maintain the position that the contract should be performed.

Even without the specific presence of a force majeure clause in a contract, contract law includes certain excuses for non-performance. One of those excuses is called "impossibility" of performance. In such a situation, similar to the outline of unforeseen circumstances that are contained in a force majeure clause, the events that have occurred result in the impossibility of the parties to perform the expected contract. In such a case, if the contract is impossible to perform, the party obligated to perform the contract is excused from its performance. Under more recent case interpretations, the concept of impossibility has been relaxed to include the concept of "impracticability". In other words, the performance becomes so burdensome or extraordinary due to unforeseen circumstances that the party responsible for performance should be excused.

Another defense to contract enforcement is the doctrine of "frustration of purpose". Like the impossibility defense, the law suggests that where a party's principal purpose in entering the contract in the first place is frustrated by circumstances outside of the control of the party, the party can cancel the contract without liability. One of the distinguishing elements of this defense however is the obligation that both parties know and understand the intended purpose of the contract. To take true benefit of that defense it is best that the purpose is clearly expressed in the body of the contract itself.

Based on the current impact of the coronavirus, which it seems everyone would agree was unanticipated and outside of anyone's control, the utilization of these principals in your general business operations may certainly apply. Whether tenants will seek terminations, supply orders may be canceled, construction will be postponed, services will be disrupted or a myriad of other circumstances may arise, the liability of the non-performing party may simply be excused because of the events of the day. Issues to be considered include the actions of state and federal governments imposing certain declarations, whether reasonable alternatives exist to meeting compliance with the terms of the contract, and finally whether the parties can amicably reach resolutions concerning these contract obligations without the need for asserting any of these legal defenses. In the long run, efforts to reach business compromises to address these unintended consequences rather than engage in conflict will be the best solutions.

Should you have any questions on interpreting your state or local laws or operating your business during this unprecedented time, please do not hesitate to contact Scott & team.

Stay Safe!

Thumbnail: SDCorporateLaw

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