Force Majeure And Property

Written on 05/03/2022
MJ Minter Inc

A general “force majeure” (or “act of God”) clause is often included in lease agreements, and in most cases, its definition is termed broadly. Such a clause will only apply in circumstances which are beyond the parties’ control, which human foresight could not have anticipated, and which make performance in terms of the contract objectively impossible. 

Over the past two years, whether the outbreak of Covid-19 and the resulting National Disaster (and lockdown regulations), were categorised as such an event, and thus deemed a “force majeure” depended on each case’s specific circumstances. For example, where furniture and fittings remained on the premises of a restaurant, even although the restaurant was not trading during the lockdown period, the landlord may have been able to show that the tenant had partial or total beneficial occupation, and gained some form of value or benefit from the occupation. The fact that prevailing circumstances (lack of income) made performance (payment of rent) uneconomical or difficult does not necessarily mean that it had become impossible to fulfil the terms of the contract. 

For a reduction of rent in these circumstances, due to “force majeure” the determining circumstance is a loss of beneficial occupation as a direct result of the “force majeure”, and not the loss of income used to pay the rent. The reduction in rent would be proportionate to the extent that the tenant has been deprived of the beneficial occupation and use of the premises. 
If a lease agreement provides that the premises is being leased for a specific purpose, then beneficial occupation is in relation to that purpose only. 
If a lease is entered into or renewed during the “force majeure” event, liability for performance will not be escaped. It is recommended that parties opt to make express provision in their lease agreements for future “force majeure” (or “act of God”) events, such as the Covid-19 pandemic or any future similar events. 
In the event that a lease agreement does not contain any clause relating to “force majeure”, then the common law relating to supervening impossibility may come into play. The parties may rely on this principle to suspend their obligations under the agreement, but only if it has become objectively impossible for them to perform under the agreement as a result of this unforeseeable and unavoidable event.