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September 2023

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The Evolution and Importance of Force Majeure Clauses in Commercial Real Estate Lease Agreements: A Focus on the Post-COVID-19 Era and the Arizona Market
The Evolution and Importance of Force Majeure Clauses in Commercial Real Estate Lease Agreements: A Focus on the Post-COVID-19 Era and the Arizona Market 2254 1282 Gottlieb Law

Force majeure clauses have been a part of commercial real estate lease agreements for as long as anyone can remember. These crucial provisions, often regarded as the “act of God” clauses, allow parties to a lease agreement to suspend or terminate their obligations when certain unforeseen, uncontrollable events occur, rendering performance impracticable, illegal, or impossible.

Historically, force majeure clauses have covered events like war, civil unrest, natural disasters, or terrorism. However, the landscape of these clauses has seen a profound shift in the wake of the COVID-19 pandemic, a pivotal event that has caused significant disruption in the commercial real estate sector worldwide, including in Arizona.

The Post-COVID-19 Shift in Force Majeure Clauses

As the COVID-19 pandemic unfolded, many commercial tenants found themselves unable to fulfill their lease obligations due to the government-imposed restrictions on businesses and drastic shifts in consumer behavior. The result was a wave of disputes and litigation cases, with both tenants and landlords looking to force majeure clauses for relief.

Many traditional force majeure clauses did not expressly account for pandemics or government-ordered shutdowns. This ambiguity led to varying interpretations, creating legal uncertainty. Consequently, many tenants found it challenging to prove that COVID-19-related disruptions fell under a force majeure clause, leading to significant financial burdens.

Recognizing this deficiency, real estate attorneys and contract parties began to revise and expand force majeure clauses to expressly include pandemics, government-imposed lockdowns, or related events. In 2023 and beyond, this trend of providing greater clarity and inclusivity in force majeure clauses is expected to continue, not just in response to the recent pandemic, but also to cater to future unforeseen global disruptions.

Force Majeure Clause Considerations for Landlords

For landlords, the critical concern is to manage risk and ensure continuity of income. The recent trend towards more inclusive force majeure clauses may seem unfavorable, as it opens up more opportunities for tenants to invoke force majeure and potentially evade lease obligations. However, it’s crucial to remember that an overly restrictive or ambiguous clause might not stand up in court, or may be subject to multiple interpretations, especially given the legal precedent set during COVID-19.

Landlords should focus on crafting balanced force majeure clauses, which explicitly state the scenarios that would allow for suspension or termination of lease obligations. It may also be prudent to require tenants to prove that they’ve exhausted all reasonable alternatives before invoking force majeure.  It is advisable for any landlord to revisit force majeure clauses in their lease agreements with an experienced real estate attorney.  Even if you did not run into specific issues during the pandemic, it is a good time to work with an attorney that did handle legal issues related to any real or perceived lack of clarity in these clauses so you can be confident your lease agreement will be enforceable. 

Considerations for Commercial Tenants

For tenants, a well-defined force majeure clause can provide valuable protection in unpredictable times. It is essential to ensure that the clause is broad enough to cover events that could significantly impact your ability to fulfill lease obligations, such as pandemics or government-imposed restrictions.  Tenants should also pay attention to notice requirements, as many force majeure clauses require tenants to promptly notify landlords upon the occurrence of a force majeure event.

Any commercial tenant should use the lessons learned from the pandemic related to contractual obligations and unforeseen circumstances to make sure they feel comfortable with the protections granted in lease agreements.  It is always advisable to review a commercial lease agreement with a real estate attorney in your state before executing.  You can also use the issues that arose for other tenants as an opportunity to review existing agreements and pursue potential amendments to update any clauses that might be too vague.  

The Arizona Commercial Real Estate Market

The Arizona commercial real estate market, particularly in major cities like Phoenix and Tucson, experienced notable disruptions due to the COVID-19 pandemic. As the economy is in recovery mode, and businesses are redefining their workspace needs, the interpretation and application of force majeure clauses in commercial lease agreements have become more critical than ever.

Arizona law generally requires a strict interpretation of force majeure clauses. In other words, if the clause doesn’t specifically list a certain event, such as a pandemic, courts may be unlikely to find that the event qualifies for force majeure relief. Therefore, both landlords and tenants in Arizona should work closely with an experienced real estate attorney to ensure their interests are adequately protected in lease agreements.

Always Review Commercial Lease Agreements with an Experienced Real Estate Attorney

Force majeure clauses are evolving to reflect the realities of an increasingly unpredictable world. As we navigate these challenging times, landlords and tenants in the commercial real estate sector must adapt and proactively address potential disruptions in their lease agreements.

At Gottlieb Law, we are committed to guiding our clients through this new legal landscape. We bring our expertise to bear in helping you draft, review, and negotiate commercial lease agreements, ensuring that your interests are thoroughly protected in the face of evolving force majeure clauses. Whether you are a landlord seeking to minimize risk or a commercial tenant looking for adequate protection, our seasoned attorneys are ready to assist you.  Contact our firm today at 602-899-8188 to schedule an initial consultation or make an appointment on our contact us page.

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Tips for Structuring Building Upgrade Requests & Other Key Amendments for Existing Commercial Lease Agreements in Arizona
Tips for Structuring Building Upgrade Requests & Other Key Amendments for Existing Commercial Lease Agreements in Arizona 2043 1362 Gottlieb Law

Landlords and tenants alike understand the importance of a lease agreement in Arizona, which governs the use of a property during a set period of time and establishes a working relationship between parties. This is common knowledge, but what is lesser known is that any party named in a commercial lease is able to request amendments to the agreement.

For commercial properties especially, building upgrades and property expansions can significantly impact the terms of a lease. Any planned changes to the premises itself requires revisiting existing agreements, so landlords and tenants should be familiar with the amendment process. It is also wise to work with an experienced real estate attorney who can help with navigating Arizona commercial lease amendments and protecting your interests.

Commercial Lease Amendments vs Addendums

There are two types of changes most commonly made to commercial lease agreements in Arizona: amendments and addendums. An amendment is a modification or change made to an existing lease agreement. It typically alters specific terms or provisions of the lease, such as rent amount, lease duration or permitted use of the premises. An amendment requires the consent of all parties involved and is usually signed as a separate document to be attached to the original lease.

On the other hand, an Arizona commercial lease addendum is an additional document that supplements the original lease agreement. It introduces new provisions or terms that are not included in the original lease. An addendum can address various aspects, such as additional tenants or legislation that requires additional legal disclosures. Like an amendment, an addendum is also typically signed by all parties involved and becomes part of the lease agreement.

While both a lease amendment and addendum involve modifications to a commercial lease agreement, an amendment changes existing terms, while an addendum introduces new provisions or terms.

When to Amend a Commercial Lease

Over the course of a commercial lease term, one or more parties who signed the agreement may find themselves in different circumstances that make certain provisions within the lease unfavorable. Rather than drafting an entirely new lease agreement, the parties can simply create an amendment to the original document.

The following are common examples of when to amend a commercial lease:

  •       To change the amount of rent
  •       To address any changes on the premises, such as expansions or building upgrades
  •       To extend the length of the lease
  •       To adjust terms, such as use provisions

As long as all parties agree to the proposed amendments of the lease agreement, any details can be changed.

Tips for Structuring a Lease Amendment Request

When structuring building upgrade requests or other key amendments for existing commercial lease agreements, it’s important to be clear, concise and professional in your communication. Here are some tips to help you structure such requests effectively:

  1. Start with a polite and professional salutation, addressing the appropriate party or parties involved in the lease agreement.
  2. Clearly state the purpose of the request. For example, if you are requesting building upgrades, specify the nature of the upgrades and their significance.
  3. Provide a detailed explanation that explains why the requested amendment or upgrade is necessary. Outline the benefits it will bring, such as improved functionality, energy efficiency, safety or compliance with regulations. Include any relevant data or documentation to support your request.
  4. Specify the desired terms. This may include the scope of the upgrades, estimated costs, timeframe, responsibility for expenses and any other relevant details. Be as specific as possible to avoid ambiguity.
  5. Justify the financial implications. If the requested amendments or upgrades will involve additional costs, provide a reason for these expenses. Explain how the upgrades will enhance the value of the property, attract more tenants or improve overall profitability.
  6. Propose a meeting or discussion to further explain your request and address any questions or concerns. This shows your willingness to collaborate and find mutually beneficial solutions.
  7. Express willingness to negotiate the terms of the requested amendments. This demonstrates a cooperative approach and can help foster a positive working relationship.
  8. Conclude your request by showing appreciation for the recipient’s attention to your request.
  9. Offer your contact information so that the recipient can reach back up with you to follow up on your request.
  10. Follow up with an email or phone call if you don’t receive a response within a reasonable timeframe to ensure your request has been received and to discuss next steps.

It’s important to keep in mind that all Arizona commercial lease agreements vary — and each has its own set of clauses. This is why you should consult with qualified legal counsel, which can help you navigate the complex process of making significant amendments to commercial lease agreements in Arizona.

Review Your Commercial Lease Amendments with an Experience Real Estate Attorney

Negotiating any proposed adjustments to a commercial lease in Arizona can be a complex and time-consuming process. Remember to assemble a strong team of professionals who can understand your needs, negotiate key terms and protect your interests.

The attorneys at Gottlieb Law are prepared to assist your company with negotiating a favorable commercial lease agreement. Contact us today at 602-899-8188 to schedule an initial consultation or make an appointment on our contact us page.

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