Commercial leases offer flexibility and affordability for business tenants. Instead of making a permanent commitment and taking on hundreds of thousands of dollars or more in financial responsibility, an organization can try out a space temporarily to see if it works for the company.
Commercial leases are complex executory contracts that clearly outline the responsibilities that the landlord has to the tenant and the requirements imposed on the tenant. Commercial leases explain the duration of the agreement, as well as the rent and secondary fees the tenant must pay.
There are also certain clauses that can theoretically protect both parties signing the lease agreement. A force majeure clause is a popular inclusion in commercial leases. What role does a force majeure clause serve?
Force majeure clauses allow for early lease termination
The average commercial lease persists for between two and five years. Some leases are shorter, and some may last for far longer than five years. A multi-year lease is a major commitment for a growing business or an entrepreneur.
Typically, a commercial lease includes terms that require the tenant to continue making payments even if the company fails or ceases to use the space. A force majeure clause is one of the few lease inclusions that can help limit the ongoing financial obligations of the commercial tenant.
Some people refer to a force majeure clause as an “act of God” clause. It is essentially an addition to the lease that allows the landlord or the tenant to terminate the lease early due to unforeseeable and uncontrollable events. Acts of war or terrorism and natural disasters are examples of scenarios that could trigger a force majeure clause.
If international hostility interrupts rare earth mineral supplies, a business manufacturing processor chips may have to cease operating indefinitely. If there is major damage to the infrastructure nearby, a landlord may not be able to continue maintaining the facilities as they once did.
In unusual and uncontrollable scenarios in which either party cannot fulfill their contractual obligations, a force majeure clause allows for the early termination of the lease. The landlord can absolve themselves of the responsibility to continue maintaining the space or providing amenities. The tenant may be able to remove their property from the space and cease paying rent.
Understanding the different terms that people can add to or encounter in a commercial lease can facilitate a better long-term arrangement. Both commercial landlords and prospective tenants need to think carefully about how the terms of a lease could cause challenges in the future before finalizing such agreements. Seeking legal guidance is a good way to get started.