By Marnie Christine Cody, Attorney, Hamlin – Cody

Thank you for sharing Jennifer Sloane’s article on force majeure.  She raises a lot of good points.

Richard Hamlin and I have been representing parties in the out-of-home industry since 1985 and we have reviewed and drafted hundreds of sign leases. In our experience, in California, force majeure clauses in sign lease are customarily drafted to favor the tenant sign operator. We strongly recommend all parties to the lease read it very thoroughly. There are likely several provisions throughout the lease that could provide relief to one or the other tenant or lessor during this pandemic.

Here is an excerpt from a lease we recently drafted for our tenant client. We think it, and clauses like this, will likely provide sign operator tenants significant relief during this pandemic. In the case of this specific example, the tenant may reduce rent in direct proportion to its loss suffered.

If, in Tenant’s sole and reasonable opinion, for any reason not caused by Tenant: … (b) electrical service or illumination is unavailable or restricted; (c) the Real Property cannot safely be used for the erection or maintenance of the Sign for any reason; … (e) there is a diversion, reduction or change in directional flow of traffic from the street or streets currently adjacent to or leading to or past the Real Property and/or any right-of-way from which the Sign is visible is relocated; (f) the Sign’s value for advertising purposes is diminished; (g) the Parties are unable to obtain or maintain any necessary permit for the erection, use and/or maintenance of the Sign; (h) the Sign’s use is prevented or restricted by law; or …; then Tenant may in its sole discretion immediately at its option either:  (a) reduce rent in direct proportion to the loss suffered for so long as such loss continues; or (b) ….

Certainly, the extent of relief under a provision like this will vary depending on the unique factual conditions applicable at each leased location. The particulars of the jurisdictions’ emergency orders overseeing both the tenant’s operations and the sign’s situs will be a significant factor in assessing the breadth of relief available to either party.  Speaking generally, emergency orders may be deemed temporary changes in law that restrict using a sign and changing its copy.  Throughout the country, Stay-at-Home and Stay-in-Place orders may result in a significant reduction in the flow of traffic leading to and past a sign diminishing the sign’s value to advertisers not willing or able pay for the ad space.

Looking ahead beyond the pandemic, parties ought to reflect on protecting the relationship they enjoyed before the pandemic.  Taking a hardline position on either side may not be the best approach.  We’re looking at various alternatives– deferrals, tolling agreements, lease extensions, etc.

You can reach Marnie at MCody@HamlinLaw.com

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