With the coronavirus pandemic on everyone’s mind, an often overlooked clause is gaining prominence in all contracts, including real estate leases: Force Majeure.
Force Majeure is French for “superior force” and the clause typically gives parties to a contract the ability to back-out unilaterally when an act of God or other extraordinary event occurs.
Mike Jaworski, managing director at CREModels, was interviewed recently by Franco Faraudo of Propmodo on the topic of force majeure in real estate leases for the article Will COVID-19 Trigger ‘Force Majeure’ Clause in Real Estate Contracts.
Mr Jaworski was quoted in the larger piece, noting: “There has been some talk in the CRE world for an agreed-upon moratorium for the whole chain, in other words, a 30-60-day freeze on rents payable for tenants as well as mortgages payable for borrowers. This is unlikely to get momentum but is something floating around in some circles. We do not see this as a likely event.”
He noted that many clauses referencing force majeure in real estate leases are too generalized to cover this kind of event so they wouldn’t give most tenants an explicit out. Mr Jaworski also added, “Some business interruption insurance policies specifically address pandemics but many do not so there may not be relief there either.”
It is important to remember that lease asbtraction is an important acquisition and asset management tool to ensure owners, investors and lenders are aware of any potential issues to prevent being blindsided in scenarios such as these.
Other topics are covered in the article, including insurance and mortgage agreements, we recommend reading the article in its entirety.
Propmodo maintains ongoing coverage of the COVID-19 pandemic and its effect on commercial real estate.
Propmodo is a global multimedia effort to explore how emerging technologies affect our built environment.