A Prospective on Future Force Majeure Court Decisions: Past Will (Mostly) be Prologue
A few months ago deep into the pandemic, many landlords were understandably concerned (with good reasons) that a few outlier court decisions on force majeure might totally upend some of their leases that they assumed were on solid grounds. The Newbury, LLC v. Caffé Nero case out of Massachusetts, which provides a creative frustration of purpose analysis, certainly caused a minor tremor at the time that the decision came out. However, what we have since observed in monitoring these cases is that by and large, the great majority of cases have held serve; courts are beginning to recalibrate and are correctly applying the foundational principles regarding the interpretation of force majeure provisions in leases and contracts in the same manner as they had been doing for many years before the COVID-19 buzz-kill pandemic hit.
What we have observed in these recent cases is that the basic legal foundation necessary for a tenant to prevail on a force majeure defense (which based on the applicable jurisdiction may also include concepts such as frustration of purpose, impossibility, and impracticability), have largely been upheld by a majority of courts throughout the pandemic. Again, we are discounting a few outlier cases that also came down the pike during that period because we do not see those cases as reflective of how courts will interpret these cases in the future. New York courts have been especially strident in applying the traditional force majeure analysis in their decisions.
The fundamental legal principle that a court must uphold the sanctity of a contract entered into by two parties in good faith will continue to guide future force majeure cases, specifically pertaining to the following elements: that a supervening event such as a pandemic does not automatically trigger a force majeure event; the recognition that landlords and tenants may (and often do) contractually allocate the risks of supervening events in their leases; that the lease may allow a tenant’s performance to be excused only if the non-occurrence of the supervening event was a basic assumption of the parties at the time that they entered into the lease (meaning that it was clearly recognized and thus anticipated); that the performance of the tenant will be excused only to the extent that it was in fact caused by the supervening event; and that the staple carve-out clause in certain leases that specifically states that notwithstanding the force majeure event, the tenant’s obligation to pay rent endures and is not excused, will be an enforceable provision in the lease.
So going forward, we expect that irrespective of the specific jurisdiction, the great majority of cases dealing with force majeure provisions in leases will be more predictable than not because most courts will continue to follow the historical precedent (including common law) that is already in place regarding what a force majeure event is, whether it applies, and which party ultimately benefits based on the language in the lease.