Some seldomly used lease/contract defenses are beginning to come up in the aftermath of the COVID-19 crisis. The closing of restaurants, bars, and many other businesses in New York City has been devastating to those industries. There are a number of defenses that have been discussed among legal experts in this field during this crisis. The most popular that is being discussed is the existence of a force majeure clause in a lease.
Parties are generally free to negotiate many of the terms of commercial leases and contracts in New York, including the existence of a force majeure clause. Force majeure clauses vary greatly from lease to lease. Some may explicitly limit enforcement during a pandemic, others may exempt payment of rent from the application of a force majeure clause.
In New York State, An executive order (202.6) signed by Governor Cuomo on March 22, 2020, closed most in-office functions. This event is likely to be covered by some force majeure clauses that permit remedies when there is a federal, state, or a city act or any act beyond the parties’ control.
Although we have not seen cases following the COVID-19 crisis litigated yet, courts will likely look at whether there is a reasonable expectation of the parties, and whether the performance of the contract has been frustrated by the circumstances beyond the control of the parties.
Even when leases do not have a force majeure clause, there are other defenses that may be applicable under these circumstances, including the doctrine of impossibility and the doctrine of frustration of purpose. Parties should be aware of the application of these clauses or doctrines moving forward.
Jordi Fernandez Law, P.C.
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New York, NY 10170