Could a force majeure clause protect you when renting a storefront?

On Behalf of | Feb 16, 2021 | Commercial Real Estate

Whether it is your first time signing or a renewal, negotiating the terms of a commercial lease can be stressful. Some people dislike the process so much that they simply accept boilerplate documents that have minimal protections for them as tenants.

Especially if the lease you plan to sign is lengthy, with three to five year terms, you might want to consider asking for a force majeure clause. Although you most likely will never need to invoke it, a force majeure clause can protect you as the business owner and the company itself from financial losses if you are unable to do business for some reason outside of your control.

Landlords often enforce leases even if companies go bankrupt

Trying to negotiate new terms for a lease may seem needlessly stressful, especially if your business is an LLC that protects you from personal liability. You might think that if the company fails unexpectedly, you can just file for bankruptcy and dissolve the business.

However, landlords often continue to assert their right to rent payments as required in the lease even after a business closes. In some cases, they may even involve themselves in bankruptcy proceedings to try to demand repayment before your business can discharge its debts. A force majeure clause helps you by ending your responsibility to pay rent if situations beyond your control result in the business’s closure.

Examples might include catastrophic storms that decimate the local economy or prevent you from operating for weeks. A sudden disruption in the supply chain that keeps you from continuing the production of your cornerstone product could be another example.

Negotiating beneficial terms in a commercial lease will help balance your risk liability when opening, expanding or moving your business.