August 3, 2022
While Covid-19 has caused many questions since March 2020, it has recently been at the forefront of a legal battle involving force majeure clauses. Force majeure clauses are contract provisions which generally relieve the parties from any liability in the instance that “an act of God” occurs or circumstances arise that are out of the control of any party involved. Whether the act constitutes an excuse for performance depends, in part, on the language of the clause. In a recent case in the state of Maine, 55 Oak Street LLC v. RDR Enterprises, Inc., the Court considered the language of a force majeure clause and whether it applied in the context of the Covid-19 pandemic.
RDR Enterprises operated a business in the space that was owned by 55 Oak Street. Like many businesses during the pandemic, RDR was forced to shut down. Later, they were given the opportunity to reopen under limited capacity but did not, citing concerns about the economic success of such an operation. As a result, RDR did not pay their rent. The question that was presented to the Court was whether RDR’s nonperformance was excused by the force majeure clause in their lease.
The Court gave two reasons that the lease’s clause did not excuse RDR’s responsibility to pay rent. The first reason was that the language of the force majeure clause did not mention anything about partial nonperformance. The second reason was that the clause’s language did not excuse performance due to governmental restrictions that limit profits.
Enforcement of a force majeure clause relies heavily on the language that is used by the two parties in the contract. In the RDR case, the Court stated that events that cause economic hardship do not constitute a force majeure event, unless stated specifically in the contract. Here, RDR claimed they would not open due to anticipated economic losses they might suffer from the limited capacity. They did not argue that they were compelled to stay closed because of the pandemic. Because of the nature of the non-performance, the Court declined to call their continued closure a force majeure event for the potential of economic hardship.
Before you seek to rely on the force majeure clause to escape performance, determine i) if the circumstances are identified in the clause or reasonably implied in the express terms of the clause and ii) is there a true causal relationship between the event and the failure to meet the contract. If you fail to fulfill one of these factors, the failure to perform will not fall within the protection of this clause.
For questions about your business contracts related to the lingering impacts caused by the pandemic, contact our RKW lawyers.
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