PA – Tenants May Face Uphill Battle to Invoke Force Majeure ProtectionsMarch 23, 2020 – Alerts
Government mandates aside, tenants to a lease governed by Pennsylvania law may face an “uphill battle” to invoke force majeure protections — used to allocate risk that is considered beyond a party’s control — whether or not such a clause is included in a lease.
The typical force majeure provision states that unexpected events such as natural disasters, terrorism, wars or other “acts of God” excuse a party’s nonperformance of a contractual obligation. Because force majeure clauses are rarely invoked, they are frequently omitted from lease agreements. However, as the coronavirus pandemic continues, it is inevitable that a growing number of tenants will seek protection from rent payments through either a delayed payment or a complete nonpayment.
If included in a lease, force majeure clauses are analyzed under principles of contractual interpretation. As a result, courts have historically enforced the plain meaning of the clause as written. That is, the excusing or tolling performance of contractual obligations will depend on the specific language in the clause. As with any other contractual provision, courts attempt to effectuate the parties’ intent in interpreting the clause. However, Pennsylvania case law has construed force majeure clauses narrowly, and even when contracts contain such a clause, the party seeking protection thereunder bears the burden of proving that the event causing nonperformance was beyond their control. Pennsylvania courts have required that the force majeure event must have been beyond the party’s control, and not due to any fault or negligence of the non-performing party. This can be a “heavy lift” for tenants who have not paid rent as courts have generally found that nonperformance resulting from economic hardship alone is insufficient for enforcement of a majeure clause to excuse nonperformance. Not surprisingly, in Pennsylvania, there are more cases finding that alleged force majeure events do not fall within a force majeure clause, than cases finding that a party is protected by such a clause.
Even if a lease does not have a force majeure clause, or even a force majeure clause that excludes rent obligations, parties may now attempt to utilize unexpected force majeure type events (i.e., COVID-19) to excuse their untimely or nonperformance of a contractual payment obligation. Under general contract principles, the doctrine of “impossibility” may discharge a party of its contractual duties when such performance is made impossible by an “act of God,” natural disaster, sudden illness or other such event that may otherwise be enumerated in a force majeure clause, including a governmental law forcing the closure of their business. However, similar to court’s interpretation of enumerated force majeure clauses, impossibility and related defenses seldom succeed, especially when invoked to excuse a purported economic hardship.
Whether or not your lease includes a force majeure provision, courts have historically made it clear that it is a “tall task” for a tenant to toll or otherwise suspend rent payments due to economic constraints. If history is any indication, Pennsylvania courts will offer little protection for economic constraints to comply with payment obligations under a lease. However, COVID-19 is an “act of God” event that has not been considered in any force majeure cases to date. We suspect tenants will be making these claims, whether or not they are allowed under their leases, and courts will, after the impact of COVID-19 has cleared, make new case law on the subject. Therefore, we are encouraging our landlord and tenant clients to attempt to enter into reasonable forbearance arrangements as to the payment of rental payments, a topic we will explore in a future alert.
Fox Rothschild’s analysis depends on the specific facts of each case. To further explore how these principles apply to your case, please contact Robert W. Gundlach, Jr., at (215) 918-3636, Carrie B. Nase-Poust, at (215) 918-3646, or Andrew R. Stoll, at (215) 918-3589.