I had a call the other day from a landlord who will not deliver timely its build-to-suit premises to his lessee. The landlord really could not prevent the circumstances–the by-now familiar, unyielding financial marketplace. The Lease did provide for delivery of the premises by a certain date, subject to delays for “Force Majeure”:
If the Possession Date has not occurred by December 31, 2008 (except for Force Majeure events or in circumstances of affirmative interference by Tenant or its agents), Tenant may terminate this Lease by affording Landlord written notice of its intended termination, and affording Landlord a ten (10) day cure period for completing and delivering the Leased Premises to Tenant . . . .
The landlord could not, despite commercially reasonable efforts, obtain the funds required to commence the construction of the building and other improvements. The tenant wants to withdraw from the project and terminate its obligations under the Lease, as delivery of the building lies well ahead, under an uncertain timetable. The landlord discovered a broad Force Majeure clause in the hind-quarters of his form Lease. Can he rely on it to hold his tenant to the lease? Something in the circumstances led me to advise that while reliance on that clause might have “legs,” it would not be a position I would be over-confident would prevail. Which, then, led me to this reflection.
Here’s a Force Majeure clause of the broadest sort:
“If either party to this contract shall be delayed or prevented from the performance of any obligation through no fault of their own by reason of labor disputes, inability to procure buy digibyte materials, failure of utility service, restrictive governmental laws or regulations, riots, insurrection, war, adverse weather, Acts of God, or other similar causes beyond the control of such party, the performance of such obligation shall be excused for the period of the delay.”
Very well; does not the unavailability of debt financing lie at the root of an inability, shortage of funds, to procure materials or labor, or otherwise constitute a “cause beyond the control” of any landlord whose vertical improvements are incomplete–or not launched? Should not a court acknowledge impossibility or frustration of purpose as excusing a landlord’s contractual obligation, in the current financial climate? Here, should force majeure entitle landlord to a delay in performance without permitting tenant to terminate its obligation to occupy the premises upon its completion and perform its other lease obligations?
Force majeure generally encompasses unforeseen events beyond the control of, and not due to the fault of, the party seeking a break (in this case, forgiveness for the delay in premises delivery). But hold on! Should “forgiveness” of the risks arising from a supervening event (fire, flood, riot, disease and the like) include those that are allocated, expressly or implicitly, by contract? Doesn’t that allocation of risk trump the landlord’s reliance upon scarcity, even if the subject scarcity–money–could not be anticipated? If all allocation of risks is to be ignored, is there any point to writing down the parties’ promises? Well, if the answer is that allocation of risks expressed in the contract cannot be dismissed, then re-read the Possession Date clause above; did the tenant here not accept an allocation of risk that the premises would not be ready by years’ end-isn’t that what the parties intended by the expression “except for Force Majeure events?” Maybe yes, maybe no-it depends, I suppose, on how carefully the parties studied the terms of the force majeure paragraph.