Franchisee Real Estate Lease: FORCE MAJEURE

A force majeure clause excuses one or both parties from performing their obligations when an unforeseen event beyond their control makes performance impossible or commercially impracticable.

Contact Neufeld Legal PC for franchising legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

The complexity of the lease agreement for the commercial real estate that is used in the franchise operation can very easily equal, or even surpass, that of the franchise disclosure document and the franchise agreement, such that retaining the legal services of an experienced lawyer to decipher, explain and negotiate the commercial lease agreement and its schedules. And for over 25 years, we have been working with business owners, including franchisees, to understand and deal with commercial lease agreements that have been presented by landlords and are foundational to their business operations. To gain the most from our legal analysis and advice as to the commercial leasing arrangement, a franchisee would be well served to understand some of the most significant commercial leasing terminology, which we have undertaken to provide you with in-depth analysis.

A force majeure clause in a commercial lease is a contractual provision that excuses one or both parties from performing their obligations when an unforeseen event beyond their control makes performance impossible or commercially impracticable. A force majeure clause is designed to address risk and protect parties from liability during catastrophic events like natural disasters, acts of war, government shutdowns, or epidemics.

Key Components of a Force Majeure Clause

The effectiveness of a force majeure clause depends entirely on its specific wording. Courts generally interpret these clauses narrowly. For a party to successfully invoke it, three conditions must typically be met:

1. The Event: The event must be specifically listed or fall under a broad "catch-all" phrase in the clause (e.g., "acts of God," "government action," "strikes," or "pandemics").

2. Unforeseeability: The event must be beyond the reasonable control of the party seeking relief and could not have been foreseen at the time the lease was signed.

3. Causation: The event must be the direct cause of the party's inability to perform its obligations.

Does a Force Majeure Clause Excuse Rent Payments?

Generally, no. Force majeure clauses in commercial leases often include language that specifically carves out the obligation to pay rent. The reasoning is that the tenant's inability to use the premises due to an event doesn't negate the landlord's continuing costs, such as property taxes, insurance, and mortgage payments. However, a lease can be drafted to explicitly allow for rent abatement or deferral during a force majeure event, but this is less common and heavily negotiated.

Force Majeure vs. Frustration of Contract

In cases where a lease doesn't have a force majeure clause, a party may try to rely on the common law doctrine of frustration of contract. However, this is a very high bar to meet and is rarely successful in the context of commercial leases.

• Frustration applies only when an unforeseen event makes the performance of the contract "radically different" from what the parties originally intended.

• Unlike a force majeure clause, frustration terminates the entire contract, not just a specific obligation.

• Courts have typically found that a temporary inability to operate a business (e.g., due to a government lockdown) does not "frustrate" a long-term lease, especially if the premises themselves are not destroyed. In these cases, the tenant's inability to make money is a commercial hardship, not an objective impossibility of performance.

Naturally, how the concept operates in the specific context of the particular lease agreement requires experienced legal analysis, such that you make the most out of your understanding of the commercial lease agreement for your franchise. For such legal analysis and advice for your franchise and its commercial leasing arrangements, we welcome you to contact franchisee lawyer Christopher Neufeld at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com to schedule a confidential consultation.

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Contact us via email at chris@neufeldlegal.com or call 403-400-4092 / 905-616-8864.