Does Your Commercial Lease Have a Force Majeure Clause? Now Is The Time To Check

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As the federal and state governments across the country continue to force the closure of ‘non-essential’ businesses due to COVID-19, millions of business owners and executives have been left scrambling to keep their operations afloat while their ability to generate revenue is significantly impacted or completely shut off for an extended period of time. If you’re company is at risk of being impacted by this event, it’s time to start strategizing.

After labor costs, rent is often a company’s largest expense and one that is more difficult to adjust than headcount. One of the ways tenants can seek to protect themselves financially is by including a “force majeure” clause in their leases. Now is the time to review your lease terms very carefully.

Force majeure translates literally from French as superior force…”

Merriam Webster

What Is A Force Majeure Clause?

A force majeure clause is a contractual provision that allocates the risk of performance if performance is delayed indefinitely or stopped completely due to circumstances outside of a party’s control which make performance impossible, inadvisable, commercially impractical or illegal and provides notice to the parties of the types of events that would cause a project to be suspended or that would excuse performance.

The purpose of the provision is to relieve a party impacted by the force majeure by extending, temporarily suspending or terminating the contract due to unexpected and unavoidable events such as “acts of God,” including hurricanes, tornadoes, floods, earthquakes, landslides, and wildfires, and certain man-made events like riots, wars, terrorism, explosions, labor strikes, and scarcity of energy supplies. To be classified as a force majeure event, the event must be beyond the control of the contracting parties, it cannot be anticipated, foreseeable, or expected, and the event must be unavoidable (irresistibility). (adapted from original source: constructiondive.com)

What’s The Status In Austin, Texas?

Many states have already instituted ‘Shelter In Place’ Orders, allowing only ‘critical infrastructure’ businesses to continue providing goods and services during this period of time. If we were to guess, Texas and Austin is moving towards a similar order, as Mayor Adler just released increased Orders as of March 21st. This has essentially forced most businesses to ask employees to begin working from home and shops to voluntarily shut their doors for the foreseeable future. We understand how scary and confusing this can be for an owner/operator so here is what we would recommend to our clients.

I’m Being Forced To Close My Business Temporarily, What Should I Do?

  1. Contact your attorney to review your lease
  2. Ask them to specifically review the force majeure clause (if you have one) to best understand your options
  3. Reach out to your Real Estate Broker to discuss your options (We specialize in tenant representation. If you need help or assistance during this time, contact us.)
  4. Open dialogue with your landlord about a possible rent deferral option until you are legally allowed to open back up for business
  5. Consider applying for an SBA Disaster Relief Loan (Texas has been declared a state of disaster due to COVID-19 as of Friday March 20th) They are offering loans of up to $2m at 3.5% to qualifying businesses.
  6. Consider talking to your banker or a bank about securing a business line of credit

If you feel like this event is going to affect your ability to pay rent for the foreseeable future or indefinitely, you should contact your real estate broker to help strategize your options when it comes to real estate.

Additional Resources

Rigby-Slack – Rigby Slack is an Austin based law firm specializing in commercial real estate, business transactions and commercial and product liability litigation. They are Elevate’s trusted legal real estate partner.

Real Estate Strategy

Elevate Growth Partners – We specialize in Tenant Representation in the Austin Real Estate Market.

Business Loans & Lines of Credit

SBA Loans – Apply online for the COVID-19 Disaster Relief Loan

Silicon Valley Bank and Chase – These are Elevate’s preferred banking partners

Tax & Financial Consulting

Embark – Local accounting consulting firm geared to helping startups and high-growth teams

9Gauge Partners – Austin-based consulting firm ranging in a variety of service offerings

PR & Communications Consulting

Integrate Agency – Local full service digital & communications agency, Integrate is helping businesses in need by offering FREE communication/marketing consultation through March 30.

Small Business Resources

Austin Texas Small Business Resources – List of local resources available to owners and operators of small businesses

To lead a business by nature one must remain optimistic and looking forward. We must always believe that our best days are still ahead–that our present challenges are momentary and will only serve to improve us; that our present victories or defeats are merely chapters in this beautifully wild and unpredictable story.

We sympathize with how difficult this situation is for many of our Austin business owners and we want you to know we are here for you. Offices serve as unique places to assemble teams that can build incredible products, deliver outstanding services and foster meaningful cultures. So whatever circumstance, problems or hardships you might be facing, know that you are surrounded by a community that wants to help you win.

WE ARE NOT LAWYERS OR A LAW FIRM AND WE DO NOT PROVIDE LEGAL, BUSINESS OR TAX ADVICE. NONE OF OUR REPRESENTATIVES ARE LAWYERS AND THEY ALSO DO NOT PROVIDE LEGAL, BUSINESS OR TAX ADVICE. THE ACCURACY, COMPLETENESS, ADEQUACY OR CURRENCY OF THE CONTENT IS NOT WARRANTED OR GUARANTEED. OUR SITES AND SERVICES ARE NOT SUBSTITUTES FOR THE ADVICES OR SERVICES OF AN ATTORNEY. WE RECOMMEND YOU CONSULT A LAWYER OR OTHER APPROPRIATE PROFESSIONAL IF YOU WANT LEGAL, BUSINESS OR TAX ADVICE.

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