Here’s How the Pandemic Is Changing ‘Act of God’ Clauses in Real Estate Contracts

Some Judges Side With Landlords, Refuse To Excuse Tenants From Paying Rent

Attorney Zach Allen had never in his 20 years of practicing real estate law seen the possibility of a pandemic or epidemic included in a standard real estate lease as an “act of God” similar to a war, hurricane or earthquake. Until the past year.

The pandemic has fundamentally transformed how most attorneys and their clients consider force majeure, a lease clause that limits the liability or obligations of tenants and landlords in the event of such catastrophes, Allen said. Those clauses had formerly been “one of those often-overlooked boilerplate provisions,” he added.

“Most landlords and tenants had little cause to invoke it except for maybe the occasional weather-related delay,” Allen, a member of the real estate practice group at the Oklahoma-based Crowe & Dunlevy law firm, told CoStar News. “I’ve looked at a lot of lease agreements for national retail tenants,” he said, and “I don’t think I’ve seen one that actually anticipated a pandemic. We’ve never encountered a situation like this.” 

A year after the pandemic wreaked havoc on businesses ranging from stores, restaurants and movie theaters, force majuere clauses have become the most discussed portions of any new commercial real estate lease. They’re also being modified or added to existing leases in anticipation of the next crisis or unexpected event. And major changes are underway to other general lease language on issues such as rent abatement and lease termination rights, according to real estate attorneys and brokers representing both sides of negotiations.

The change comes after the pandemic and government emergency orders forced businesses in shopping malls, restaurants and office buildings as well as other commercial properties to close or sharply limit occupancy. Many struggling tenants stopped paying rent or abandoned their space, causing high-profile fights between landlords and tenants. Some conflicts have escalated to lawsuits over who should bear financial responsibility for the disruption that has caused billions in lost sales and income and contributed to millions of lost jobs and a rising tide of business bankruptcies.

“We’re seeing language involving government-mandated shutdowns in virtually every new lease,” said Scott Burns, retail brokerage lead in Los Angeles and managing director for JLL.

Almost one-third of leases signed between April 1 and Dec. 31, 2020, in the United States specifically listed a pandemic as a force majeure event, compared with just 4% of leases signed prior to the crisis in 2018 and 2019, according to a survey of more than 300 recently signed leases conducted by business and legal research firm LexisNexis.

In total, more than 60% of leases signed from April through December mentioned the pandemic, other public health crises, coronavirus-driven emergency shutdowns or laws that could effectively make it illegal to fulfill the lease terms, the survey found.

“Force majeure clauses went from being somewhat boilerplate prior to the pandemic to being one of the more negotiated provisions in a lease negotiation,” Michelle McAteer, a real estate litigation attorney with Chicago-based Jenner & Block, told CoStar News. 

Negotiating force majeure provisions has taken on a new sense of urgency as attorneys and their clients track the progress of the first wave of lawsuits from tenants that seek to excuse or delay their lease obligations amid extreme financial hardship, McAteer’s Jenner & Block colleague on the litigation side, Abraham Salander, told CoStar. 

In the early weeks of the pandemic, tenants, owners and their attorneys rushed to review their leases and push for new terms that include references to pandemics and civil unrest, he said.

“We immediately started seeing feuds between landlords and tenants from day one of the pandemic,” Salander said. “My phone was ringing off the hook. Emails were blowing up from clients, other partners in the firm and outside lawyers were calling to discuss issues. Tenants said they couldn’t pay rent and didn’t have to, and landlords pushed back.”

That burst of activity “has now swelled into this wave of ongoing issues that my clients are facing,” Salander added. 

Burns said what stuck out to him was that, although leases weren’t much of a road map for navigating the crisis, most struggling retail landlords and tenants pulled together and worked out their own agreements on deferred or abated rent without needing to call in the lawyers.

“Landlords could see they were struggling and tried to become partners instead of playing hardball,” Burns said.

New Lease Terms

Force majuere clauses in property leases signed before 2020 typically defined fires, labor strikes, war or acts of terrorism, government prohibitions, natural disasters or other uncontrollable circumstances as being events that could free landlords or tenants from being liable for lease terms. Few of the clauses mentioned pandemics and almost all did not allow the abatement, extension or deferral of rent or other payments required by either party.

Now, attorneys have to grapple with whether a tenant can get rent full abated if a government order closes the doors to the business or whether they can get rent partially deferred if their capacity is reduced. For example, Crowe & Dunlevy’s Zack Allen negotiated changes to a lease between a hospital tenant and property owner that would require rent abatement if the owner receives forbearance from its lender in the event of a government-ordered lockdown of 10 or more consecutive days.

But many real estate attorneys are still trying to sort out exactly how force majeure clauses will change in coming months and years, said David Farren, an attorney with the Phoenix-based Jaburg Wilk law firm. The circumstances created by the pandemic have raised legal issues that are barely a year in the making and are difficult to analyze without the guidance of precedent-setting case law that hasn’t yet been established.

“Unfortunately, the courts have not had time to catch up to the COVID-19 pandemic,” Farren told CoStar News.

Many owners and tenants that haven’t yet added such lease provisions plan to do so, according to the survey of more than 300 recently signed commercial leases obtained from private sources by LexisNexis legal publication Practical Guidance Journal. 

More than half the respondents whose force majeure lease clauses did not already include mention of pandemic-related events reported that they planned to renegotiate their leases to include one or more of those events in their contracts.

By Randyl Drummer
CoStar News

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Cawley Partners Keeps Building Office Like It’s 2019

Fears over the office market’s future are not getting Dallas-based Cawley Partnersdown on the asset class. They’re not even slowing it down from launching new developments. 

The Dallas-based developer just broke ground on a 600K SF office campus in Frisco.

Cawley’s latest announcement comes on the heels of its November launch of plans for a 500K SF office-centered development in The Colony

Its latest development, known as Tate + Toll, encompasses two Class-A office towers situated at the corner of Dallas North Tollway and Warren Parkway in Frisco.

“Given the location and our ability to offer the latest in clean technology and touchless accessibility, Tate + Toll is going to be a very desirable home for corporations moving to DFW,” Cawley Partners CEO Bill Cawley said in a statement. 

He continues to bet big on DFW office even after the coronavirus pandemic slowed overall activity in the market. In the past year, space on the DFW office sublease market has grown to 9.5M SF, causing some alarm.

Meanwhile, net absorption in the fourth quarter was negative 401K SF, according to Transwestern data. That was actually a substantial increase from the third quarter, showing signs of a recovery, Transwestern concluded in its Q4 office report. 

Transwestern predicts a full office market turnaround by the second half of the year as vaccines become widespread. It’s an optimistic forecast that Cawley appears to agree with. 

Cawley’s firm in January announced plans in partnership with Staubach Capital to acquire the 475K SF Sabre Global corporate headquarters in Southlake. The deal pulled another two-building, 475K SF office campus into Cawley’s portfolio. 

During an interview with Bisnow in January, Cawley asserted his strong belief that DFW office product will hold its value long-term. 

“People have been moving to Texas for 15 years, but I am a big believer that post-Covid when the market turns back on, people will move here in greater numbers than they have in the past,” Cawley said at the time.

By: Kerri Panchuck, Bisnow Dallas-Fort Worth

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2 Platinum Corridor Mixed-Use Retail Centers Woo Bidders

By: Kerri Panchuk, BisNow Dallas – Fort Worth

It’s rare for Dallas’ Platinum Corridor to have two mixed-use, retail-anchored developments on the market at the same time, but that’s what’s happening alongside the Dallas North Tollway today.

Nicknamed the Platinum Corridor for the copious amount of highly valuable office, retail and residential product bordering the tollway north of Interstate 635, the Dallas North Tollway submarket has two retail-focused assets grabbing the attention of investors as of late.

The first is a 128K SF mixed-use development known as West Plano Village. It has already received multiple purchasing bids, said JLL Senior Managing Director of Capital Markets Chris Gerard, who is part of the team listing the property. 

The property sits on 9 acres near Parker Road and the Tollway in Plano and is home to national and regional tenants, including Charles Schwab, Eatzi’s, Spaces, AT&T and Kona Grill. 

A second asset, known as Village on the Parkway on Belt Line Road in Dallas, also has bidders vying to purchase the 349K SF, retail-anchored mixed-use development. The community is 77% leased and has a combined 200,000 vehicles pass it each day, according to JLL. Tenants inside the 40-year-old mixed-use Village on the Parkway include grocery retailer Whole Foods and AMC Theatres.

Village on the Parkway sold in 2015 to UBS Realty Investors.

While both of the JLL-brokered developments have multiple bidders lying in wait, Gerard said no offers have been officially accepted. 

Neither asset is distressed despite ongoing upheaval in both the retail and office sectors, he added.

Seeing how popular DFW is with in- and out-of-state investors post-pandemic, the owners thought now would be a good time to offload their mixed-use assets, Gerard said. 

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Jerry Jones’ Blue Star Land plans to expand its business park in Frisco

Star Business Park is growing with plans for two more buildings totaling nearly 300,000 square feet.

Dallas Cowboys owner Jerry Jones is expanding his Frisco business park with plans for two more buildings.

The projects are planned in Star Business Park, the more than 200-acre industrial development by the Jones family’s Blue Star Land and Lincoln Property Co. The 3-year-old business park is off Preston Road and south of U.S. Highway 380.

Blue Star Land plans to add two buildings with 100,800 square feet and 178,200 square feet, according to planning documents filed with the state. The projects would start construction in March at the corner of Gateway and Corporate drives.

Alliance Architects is designing the buildings, which are scheduled to open later this year.

Blue Star Land bought the Star Business Park property in 2018. Since then, the real estate firm has landed a growing number of tenants for the project, including Amazon, international technology firm GEA Group and Magnus Chemical.

With industrial space in high demand in North Texas, Star Business Park has one of the largest supplies of new warehouse and distribution space in Frisco.

By: Steve Brown, Dallas News

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Dallas’ New Affordable Housing: Welcome To My Container!

An apartment complex offering workforce housing at less than $1K a month is coming to Southeast Dallas. The only catch: Your next bedroom will be inside a shipping container. 

Nonprofit CitySquare Housing, in partnership with Merriman Anderson/Architects, announced the launch of the Lomax Container Housing Project, an initiative that will create 19 affordable one-bedroom apartments in Southeast Dallas by repurposing shipping containers. 

The complex, under construction at the intersection of South Malcolm X Boulevard and Louise Avenue, will offer 300 SF units with a living area, kitchen and bathroom.

Priced at $906 a month with utilities included, the units will be rent-restricted at 60% of the area median income.

The project is a prototype for the area — the partners said they aim to build shipping container housing projects in other strategic locations across the DFW Metroplex. 

The containers will be built off-site and installed by Falcon Structures. In addition to Merriman Anderson/Architects, the project is relying on the work of Summit Consultants, Hunt & Joiner, RLG Consulting Engineers, IntroSpec and Studio Outside.

By: Kerri Pacchuck Bisnow Dallas – Fort Worth

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