Force Majeure, Commercial Leases, and COVID-19

By Jeffrey H. Bigelman, Osipov Bigelman PC
Published on michbar.org

Force majeure—meaning “superior force” in French—has a specific legal meaning in the American legal framework. It generally applies to events that are unavoidable, unpredictable, and outside the control of those party to the contract. Contracts often include force majeure clauses in the document which excuse a party’s performance of its contractual obligations. The intent of these clauses is to avoid otherwise harsh penalties as a result of extreme events unrelated to the contracting parties.

In Michigan, and many other states, a party cannot invoke a force majeure clause if that party was itself the cause of the delay or impossibility. Cordoba v. City of Detroit, Mich App No. 221391, September 4, 2001, unpublished. Courts have ruled that purely economic conditions are not enough to qualify as a force majeure event. Kyocera Corp. v. Hemlock Semiconductor, 313 Mich App 437 (2015), is an example of the difference between economic difficulty and true force majeure. In this case, the market for solar panel components fluctuated greatly due to a “trade war” between the United States and China. Even though this drastic change in price was caused by government action, the court did not find that government regulation made it impossible for the parties to fulfill the terms of the contract, just unprofitable.

While interpretation is narrow, success is not impossible. In ANR Pipeline Co. v. Devon Energy Corp., 1989 US Dist LEXIS 17684 (WD Mich February 1, 1989), the plaintiff prevailed when the court ruled that it properly invoked a force majeure clause after a series Federal Energy Regulatory Commission order, and subsequent state law, invalidated many of its customer agreements and decimated its sales.

Most recently, the Bankruptcy Court for the Northern District of Illinois in In re Hitz Restaurant Group, 616 BR 374 (Bankr ND Ill 2020) held that the force majeure clause in debtor’s lease was unambiguously triggered by Section 1 of the governor’s executive order prohibiting in-person dining in restaurants due to the COVID-19 pandemic. The lease’s force majeure clause provided:

Landlord and Tenant shall each be excused from performing its obligations or undertakings provided in this Lease, in the event, but only so long as the performance of any of its obligations are prevented or delayed, retarded or hindered by…laws, governmental action or inaction, orders of government.

However, because the executive order still permitted restaurants to provide takeout, curbside pickup, and delivery, debtor was not entitled to a 100 percent rent reduction caused by the force majeure clause. Based on debtor’s concession that 25 percent of the restaurant’s square footage, consisting of the restaurant’s kitchen, could have been used for carryout, curbside pickup, and delivery purposes, the debtor owed at least 25 percent of the rent amount to the creditor even after application of the force majeure clause.

Accordingly, as it is clear that this pandemic is an event that would trigger most force majeure clauses, cases such as In re Hitz Restaurant have shown the doctrine is fact specific and not absolute.

In leases where no force majeure clause exists, an advocate may look to the doctrines of frustration of purpose and impossibility to obtain similar relief. See Liggett Rest Group, Inc. v. City of Pontiac, 260 Mich App 127 (2003) and Roberts v. Farmers Ins. Exch. 275 Mich App 581 (2007) respectively.