Whilst the protections afforded by a force majeure clause are not boilerplate wording in a Scottish commercial lease (particularly from a tenant's perspective), the challenges of recent years – and particularly the unprecedented impact of the Covid-19 pandemic – have led both landlords and tenants to consider the specific terms of their leasing requirements more closely.
What is a force majeure clause?
A force majeure is an act, circumstance or event (such as a natural disaster or war) which is out with the control of parties to a contract. A force majeure clause alters parties' obligations in the event of a specified circumstance occurring which prevents one or both parties from fulfilling their obligations.
Unlike some European legal systems (for example, in France and Spain where force majeure is underpinned by the countries' Civil Codes), there is no statutory or common law concept of force majeure in Scotland and therefore no automatic protection if a party fails to perform their obligations for reasons beyond their control. Instead, a force majeure clause must be explicitly included within a lease and the events which constitute a force majeure need to be expressly agreed between the parties.
In the Scottish commercial leasing context, historically, force majeure clauses rarely benefit tenants. In the event of an occurrence of a force majeure, a tenant is not usually discharged of their obligations under a lease; for instance, they will still be required to pay rent and service charge whether or not they can benefit from and use the property. It could be argued that landlords more commonly benefit from force majeure lease protections. This is particularly true where the lease places positive obligations on the Landlord, such as the obligation to provide certain common services. If the Landlord is unable to provide those services for reasons out with their control, it may be accepted that they do not need to provide those particular services for a temporary period.
The impact of Covid-19
The unprecedented nature of the coronavirus pandemic and trade resultant restrictions has led to some relaxation of this arguably onerous position. It has become more common for landlords and tenants to engage in commercial and collaborative discussions around how the interests of both parties can be best served and protected if another public health emergency arises. As a result, 'covid clauses' have become increasingly standard in commercial leases, providing for a suspension of certain monetary obligations (including rent and service charge) for a period following the issue of a government directive that renders the occupation or use of premises unlawful or, in some cases, not commercially viable.
The significance of this should not be under-estimated. In a Scottish commercial lease, the only common comparable tenant protections relate to situations where a property is physically damaged or destroyed by a risk that has been insured against (for example, fire, flood, subsidence etc.) or, in some cases uninsured risks, to the extent that it is no longer capable of occupation and use.
What next for force majeure?
While Scottish tenants may be keen to see the 'covid clause' expanded to cover other force majeure events as in certain European countries, landlords will be looking to ensure that the circumstances which trigger suspension of parties' obligations remain carefully and clearly defined. Any expansion of protection would need to align with those force majeure risks which landlords can insure against at reasonable commercial rates and a tenant would likely need to be accepting of an obligation to pay the cost of this insurance. Any change will therefore take some time to become common practice.
As we transition into the post-pandemic era, it will be interesting to see how commercial discussions develop and how commercial leases evolve in response. The key message for both landlords and tenants will be to continue to "expect the unexpected" and to be alive to the possibility of circumstances which justify, and indeed necessitate, protection.
Should you wish to discuss any matters relating to commercial leasing in Scotland, please do not hesitate to get in touch with either Danny George, partner, or Emma Barnett, solicitor, in our retail and leisure team.
