COVID-19 has affected countless people across the world and has obstructed everyday life for nearly everyone in the United States. Because of the unpredictability of this pandemic, many people are at a loss for what to do, especially when it comes to contracts that were agreed upon before the pandemic began. 

First, you should read through your lease agreement. Many leases or rental agreements have a clause included in them that addresses the possibility of an unforeseeable event happening and what the course of action is in response. These clauses are called force majeure clauses, and they allow a party to forego agreed-upon performances if one of the listed events in the clause occurs. 

Another way a lease can be voided or altered after an unforeseeable event occurs is through a frustration of purpose or impossibility claim, though these two claims are difficult to win on in court. This blog discusses force majeure, frustration, and impossibility and how you may use these doctrines and clauses to be excused from a contract because of the coronavirus.

What is a force majeure clause and how do I use it? 

Many leases contain a clause called a force majeure clause. A force majeure clause is a provision that excuses a lessor or lessee from performing part of the lease if an event specified in the lease such as an earthquake or governmental shutdown occurs that makes performance impossible. Each force majeure clause can vary across many different contracts, and it is important to look at the specific language of the clause in order to understand when it applies. Whether the COVID-19 pandemic constitutes force majeure depends on whether and how the force majeure clause is defined in a particular contract. For example, some force majeure causes only provide for true “acts of God,” meaning natural events such as fires, floods, etc. Whereas others are broader and provide excuse for instances such as changes in laws or regulations. In the latter case, you are more likely to be excused for performing a contract due to COVID-19 and the resulting, sometimes required, shutdowns.  

Furthermore, a force majeure clause can only be invoked if a party can show that, despite acting diligently and in good faith, carrying out the contract has become impossible or unreasonably expensive due to an unforeseen event. The event could not have been reasonably predicted or else the force majeure does not apply. Additionally, the unforeseen event must be the main cause of performance becoming impossible in order for the force majeure clause to be invoked. 

If the damage caused by the unforeseeable event could have been mitigated in some way, then the force majeure clause cannot be invoked. This means that if a landlord was about to rent to tenants, but the tenants pulled out due to the spread of COVID-19, the landlord will have to put in effort towards finding new tenants and mitigate their own damages before they can bring a claim. Typically, this means the landlord must put forth a reasonable, good faith effort to get a new tenant; they cannot just sit idly by and let rent accrue for several months and sue on that amount. 

If there is not a Force Majeure clause in my lease or rental agreement, what other options do I have? 

For contracts without a force majeure clause, unforeseeable events can still change or even void the terms of a contract in certain situations. These situations include when there is frustration of purpose or impossibility of performance. 

What is frustration of purpose and how does it apply? 

If a contract or lease does not have a force majeure provision, a frustration of purpose excuse might be used to forego performance. Most courts interpret frustration of purpose very narrowly, meaning that bringing a successful claim for frustration of purpose is difficult and rare. Frustration of purpose is applicable when the sole purpose for entering a lease has become moot. 

For example, if a small business owner signed a lease in a mall to run their small business and the mall gets completely shut down due to COVID-19 orders, the business owner might be able to claim they should be relieved of paying rent for the affected months. The reason this could be the case is because the business owner rented the space in the mall for the sole purpose of running their business, and now that purpose is no longer attainable. 

If the business owner rented a house to live in as well as run their business and COVID-19 caused their business to shut down, a frustration of purpose claim would be difficult to prove. This is because the purpose of renting the property has not been entirely frustrated, as the business owner still has the option of living in the house. In other words, because the tenant leased the rental property for the dual purpose of residential and commercial reasons, and only the commercial purpose is frustrated, then the residential purposes is not frustrated. As a result, the sole purpose of the contract is not frustrated because a part of it remains viable. In that case, a court will not likely find that the purpose of the contract is frustrated. 

What about the doctrine of impossibility? 

The doctrine of impossibility uses similar law and approaches as frustration of purpose. Impossibility in the law does not mean something is strictly impossible, but that it is impracticable because of extreme and unreasonable difficulty, expense, injury, or loss involved. For example, if a construction company is hired to build a home, they cannot claim impossibility simply because the house costs more to build than they initially predicted. If, however, an earthquake destroys the house before it is finished being built, the court can rule the performance of the contract’s original terms and prices as impossible since rebuilding the house would incur an extreme and unreasonable expense.

Regarding COVID-19, a court can find that a contract is impossible/impracticable and excuse performance. However, a court will find that the contract is impossible/impracticable only if it is unreasonably and extremely difficult to perform. Merely incurring a greater expense due to the economic changes caused by COVID-19 will likely not be enough. 

Typically, competition, delay in approval for permits, and changed economic circumstances are not situations that are unforeseeable enough to constitute impossibility. 

Although bringing claims for force majeure, impossibility, or frustration of purpose is difficult, COVID-19 is an unforeseeable event that has a good basis for bringing one of these claims. Fill out an interest form today to see if GLO can help you.

GLO has prepared this blog to provide general information on legal issues that may be of interest. This blog does not provide legal advice for any specific situation and this does not create an attorney-client relationship between any reader and GLO or its attorneys. GLO engages clients only through specific fee arrangements and signed engagement letters. GLO does not guarantee any results.