Do I make lease payments during a “shelter-in-place” order?
Question: Our real estate brokerage firm in Phoenix leases a small office building. Our lease is up at the end of July of this year, and I have been negotiating with the landlord for a one-year extension. Because of the coronavirus pandemic, however, I am questioning whether I should sign a one-year extension. In fact, having many of my employees work from their homes the past two weeks has been so successful that I may significantly downsize the office.
Last week when I spoke to the landlord he said that, if Governor Ducey issues an executive order mandating Arizonans to “shelter-in-place,” then all non-essential businesses will be closed, including our office building, and that he would have to lock us out of the building. As I said above, many of my brokers and agents have been working from home, but I have been going into the office with minimal staff to answer phones and do administrative work. If the landlord locks us out of the building, we wouldn’t even be able to do that! Will the brokerage firm then still be on the hook for the remaining monthly rent through the end of July?
Answer: Probably not. Since the coronavirus pandemic, there has been much discussion in the legal community regarding force majeure clauses found in many contracts. A literal English translation of force majeure is “superior force,” but is better translated as an “unavoidable accident.” These force majeure clauses relieve contracting parties from performance when there is an unavoidable accident that renders the contract impossible or impracticable to perform. These force majeure clauses typically contain a list of events when performance under the contract is excused, e.g. fire, flood, nuclear war, terrorism, etc. Global pandemic is not usually one of the events listed in a force majeure clause, however, at the end of this list is typically a catch-all phrase. The discussion in the legal community is whether, and to what extent, the coronavirus pandemic, along with the associated declarations and restrictions made by governments and officials, qualifies as force majeure under a this catch-all phrase.
A “shelter-in-place” order given by Governor Ducey requiring the closure of your office building due to the coronavirus pandemic would probably be an unavoidable accident triggering the force majeure clause under your lease. In other words, the landlord, through no fault of his own, could no longer perform, i.e., provide to you the leased space. Depending on the language of your force majeure clause, the landlord would be excused for this breach of the lease, and you would be excused from paying rent during this “shelter-in-place” order.
Other leases, however, may not have a force majeure clause. In these cases, tenants would still be protected in Arizona under A.R.S. § 33-343, which relieves tenants from paying rent when the leased premises are rendered untenantable. If your landlord locks your brokerage firm out due to a “shelter-in-place” order by the government, the premises are then certainly untenantable by your brokerage firm. Therefore, if the lease does not have a force majeure clause, your brokerage firm will probably be excused from paying rent under A.R.S. § 33-343.
Note: A.R.S. § 33-343 is a default rule. Meaning, the language of the lease’s force majeure clause will supersede this statute.
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