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Leases in the Time of COVID-19

By October 20, 2020July 20th, 2023Leases

Does your current lease protect you during exceptional circumstances? The force majeure clause has become much more interesting to tenants and landlords during this pandemic. 

Just like falling in love in the time of cholera presented many obstacles, being a commercial tenant during the time of COVID-19 has proven to be complicated. The unanticipated closure of your practice isn’t the only time you should pay attention to this clause. Do you now have to extend your existing lease? Or are you trying to negotiate a new lease? You now need to take a closer look than ever at your force majeure terms.

Shutting down and re-opening your dental practice as well as dealing with rent reductions, deferrals, and forgiveness have all taken more time and attention than most tenants and landlords are used to paying to their lease.

After the RCDSO recommended that non-essential dental services be suspended, many dentists were surprised to find out they still had to pay rent while closed. This obligation is usually due to one clause found in many commercial leases, often located right near the end of a lease with the rest of the ‘boilerplate’ terms: the ‘force majeure’ clause.

Until now, force majeure terms have been somewhat of an afterthought. They haven’t been given the same attention as the ‘important’ aspects like term length, renewal options, rental rate, and demolition clauses. But now, both tenants and landlords are paying much more attention to them.

The closure of your practice isn’t the only place this clause is popping up. Do you now have to extend your existing lease? Or are you trying to negotiate a new lease? You now need to take a closer look than ever at your force majeure terms.

What is Force Majeure?

Force majeure translates from French to superior force. Force majeure clauses are found in many contracts, including construction, supply shipments and leases. They govern the conduct of the parties involved if a major unforeseen event affects the ongoing practicality of the agreement. Without a force majeure clause, one of the parties could argue that the contract had been ‘frustrated’ and that it should be terminated. The force majeure clause is a way to ensure the agreement will continue while giving the parties the flexibility to deal with emergencies.

Commonly listed examples of situations that will activate a force majeure clause are:

  • natural occurrences (earthquakes, floods, etc.)
  • fire
  • war
  • labour strikes

When one of the events happens, the force majeure clause may excuse a party from their responsibilities under the agreement for the unforeseen event’s duration. Once the event is no longer affecting the party’s ability to perform these obligations, they will once again have to do what is required by the contract.

Force Majeure Clauses in Leases

Force majeure clauses can be drafted to benefit only some parties to the agreement or benefit all parties. In a lease, the force majeure clauses are often for the benefit of both landlord and tenant. However, the one big exception to this is the payment of rent.

The first example below affects the landlord’s ability to comply with the contract, and the second affects the tenant.

Example 1:

A labour strike prevents a landlord from completing construction in the tenant’s premises.

The landlord is excused from completing the work until the end of the labour strike.

The tenant has no legal recourse to require the landlord to comply with the requirement to do the construction.

Example 2:

A pipe in the building breaks, flooding the tenant’s practice.

The tenant is forced to temporarily shut down until the damage is repaired.

The tenant is excused from the obligation of not shutting down for more than a certain number of consecutive days (known as ‘going dark’).

But, the tenant is still required to pay rent as usual.

Force Majeure Clauses Today

Now that we have faced a significant public health emergency affecting all kinds of businesses, commercial tenants are taking a closer look at the force majeure clauses in their lease. Exactly how a force majeure clause will function in a particular agreement depends on the specific language used.

What triggers the clause?

The first thing to consider is the specific requirements that must be present to trigger a force majeure clause.

  • What type of events are listed?
  • Was a pandemic (or similar public health emergency) specifically listed?
  • Can a pandemic be inferred from other more general wording?

When does the clause take effect?

Once you have determined the situation fits your particular force majeure clause, the next question is the timing of the trigger.

  • Is it the date of the RCDSO recommendation to dentists to shut down enough?
  • Do you require a recommendation from the Board of Health?
  • Does a government have to declare an official state of emergency? 

Which responsibilities are included?

Even if you have a force majeure clause that clearly allows you to pause your obligations during a public health emergency, you may still need to pay rent. As seen in the example above, you need to see if all or only certain obligations are paused.

What Can I Do Now?

What can you do now to proactively avoid any issues as we continue to deal with COVID-19?

If you are negotiating a new lease:

  • Be wary of signing an offer to lease that indicates you must agree to sign a final lease on the landlord’s standard form – it may not have a force majeure term or might include one that is not to your benefit.
  • In addition to focusing on the usual important terms, spend time negotiating the force majeure clause.

If you are renewing your existing lease:

  • Review your lease and renewal documents to find out if they include a force majeure clause.
    • If you don’t have one, you will probably want to try to include one now.
    • If there is one, see if it offers you sufficient protection.
  • Speak to your landlord about the possibility of making some updates to your lease terms as early as possible before your current term expires (but within the timeframe specified in your lease)
  • Rather than merely agreeing to extend your existing lease with new rental rates, explore the possibility of amending the terms of your lease.

If you are midway through the term of your lease:

  • Look at your lease and any renewal documents to see if it contains a force majeure term.
  • If you do have a force majeure term, read it carefully:
    • What types of events does it list that would trigger it?
    • What benefits do you get as a tenant?
    • What kind of protection do you have in the event of any further required closures of your practice?
  • If there is no force majeure term, or if you do have one but it doesn’t protect you as a tenant, consider speaking to your landlord about making some changes to your lease.

Bottom Line

If you aren’t sure if you have a force majeure clause or don’t know if the one you do have will give you any protection in the event of a future shutdown, please contact us to review your lease. Some landlords may not be motivated to change the force majeure terms in the lease unless you agree to other changes that benefit them. Negotiating with a landlord takes attention to detail and knowledge of what is standard or reasonable. You don’t need to weigh out the benefits of each term on your own. We negotiate lease terms for dentists every day and are happy to handle this for you to ensure your business is protected. Send DMC an email or give me a call directly at 416-443-9280 extension 208.

The Content of this post is provided for informational purposes only. It is not intended to be legal, financial, tax, or other professional advice of any kind. You are advised to contact DMC (or other counsel) to seek specific legal advice concerning your individual situation.