By: Michael Safren, Esq.
The global Covid- 19 pandemic and the state government’s responses to order non-essential businesses to shut and non-essential workers to “stay at home” have led many businesses and individuals to inquire if they must still perform their contractual obligations as may be found in a service contract, installment contract, or lease.
Some contracts contain a “force majeure” clause or provision that excuses the nonperformance of stated obligations under a contract when extraordinary events prevent a party from fulfilling its contractual obligations. In Washington, the force majeure clause provides a complete defense to liability if one party is unable to perform its obligations under the contract because of circumstances outside of its control. Hearst Communications, Inc. v. Seattle Times Co. 154 Wn.2d 493, 501 (2005). Examples of circumstances outside of one’s control include, labor strikes, acts of God, significant changes in governmental regulations, and acts of war. Diseases have been the basis for successfully invoking force majeure clauses. See Citrus Soap Co. v. Peet Bros. Mfg. Co., 33 Cal. App. Dec. 712, 194 Pac. 715. However, the applicability of a force majeure provision is contract specific.
Does the Contract Contain a Force Majeure Clause?
The first step is to analyze the contract to determine whether it contains a force majeure clause. If the contract includes a force majeure clause, it may delineate the specific events or types of events that would constitute an event of force majeure, such as illness, act of God, natural disasters, governmental regulation, embargoes, and war. Only the delineated events would then trigger the force majeure clause. Acts of God typically encompass natural disasters and have been interpreted to include the outbreak of communicable diseases. See Groover v. Zook, 44 Wash. 36 (1934). If the Force Majeure clause does not specifically list any applicable events, the contact may contain broad language to include “unforeseen events” or “circumstances beyond reasonable control of the parties” which may allow the parties to invoke the force majeure clause. Finally, depending on the language of the force majeure clause, it may only operate to excuse delay in performance during the period that performance is not possible and once the unforeseen event passes, the parties may still be obligated to complete their required performance.
Force Majeure in Commercial Leases
Many commercial lease agreements contain a force majeure clause. For example, Commercial Brokers Association lease agreement contains a force majeure clause which states “Time periods for either party's performance under any provisions of this Lease (excluding payment of Rent) shall be extended for periods of time during which the party's performance is prevented due to circumstances beyond such party's control, including without limitation, fires, floods, earthquakes, lockouts, strikes, embargoes, governmental regulations, acts of God, public enemy, war or other strife.” The clause makes clear that i) the tenant’s obligation to pay rent is not subject to the force majeure clause and thus not excused ii) invoking the force majeure clause does not sever the contract, it only extends the time for performing non-rental payment related obligations and iii) the only events which trigger are specifically enumerate within the clause, although it appears likely that parties could invoke the clause based on governmental regulations which ordered non-essential business to close or acts of God. As such, under the terms of this lease agreement, a tenant cannot rely on the Force Majeure clause to refrain from paying their rental obligation regardless of the Governor’s orders or the proliferation of the Covid-19 virus.
If Contract Does Not Contain a Force Majeure Clause?
If a contract does not contain a force majeure clause, then the non-performing party cannot invoke a Force Majeure clause and instead may seek to invoke common law defenses such as impossibility, impracticability, frustration of purpose, and acts of God. Broadly, these defenses, like force majeure seek to excuse non-performance due to “extreme and unreasonable difficulty, expense, injury or loss” due to unforeseen events or conditions. 25. Wash. Prac., Contract Law and Practice §10:16 (3d. ed.). Under these common law defenses, the non-performance may only be justified during the time that the performance was impossible, impractical, or frustrated and once the obstacle such as the “stay at home” order is lifted, then the non-performance is no longer excused.
If you have a contract and are concerned about your obligations during these times or if you are concerned that the counterparty may not perform their contractual obligation, you should consult an attorney to help you understand the requirements of contact and the available common law defenses.
Michael Safren is a Partner at The Law Offices of Jenny Ling, PLLC. His practice focuses on business, real estate, and civil litigation.