Tenants reviewing commercial leases often have the option of negotiating with prospective landlords. Commercial landlords seeking to lease their office spaces, manufacturing facilities or retail shops may compromise on certain details to secure a new tenant.
Asking for specific provisions in a commercial lease can take some of the risk out of renting commercial space. Tenants often need to consider what might happen if the business fails or must suddenly cease business operations. A force majeure clause can protect business tenants from ongoing rental obligations in certain scenarios.
What is a force majeure clause?
The term “force majeure” is a French phrase that means “greater power.” Some people refer to force majeure clauses as “Act of God” clauses. They are essentially contingency clauses that eliminate contractual obligations in unpredictable and uncontrollable circumstances.
The failure of a company due to improper financial management does not trigger a force majeure clause. Such issues are under the control of the person operating the business. However, if the company has to close or suddenly fails due to unusual circumstances, such as acts of war, natural disasters and other uncontrollable situations, then the force majeure clause could protect the tenants, as well as the landlord.
Either party could theoretically terminate the lease when circumstances outside of their control prevent the business from operating or the landlord from maintaining the space. Force majeure clauses protect business tenants from accruing continued rent obligations when the company cannot operate and may not be able to reopen for an extended period.
Negotiating appropriate inclusions in commercial leases can protect tenants. Clauses that address the possibility of business failure and the need to terminate the agreement early can be helpful, for starters.