In a commercial lease agreement, a “force majeure” clause or an exculpatory clause can protect either party in the event of an unpredictable circumstance. Since both clauses are designed to provide protection by limiting liability in commercial real estate transactions, they are often used interchangeably. While they may both serve to accomplish the same end goal and have some similarities, they are very different. A force majeure clause can protect you when certain unanticipated events occur, while an exculpatory clause can limit your liability and the liability of the other party.
Knowing the difference between these two clauses can help prevent costly disputes and misunderstandings.
Force majeure clause
A force majeure clause allows a party to be excused from performing its contractual duties when a situation beyond its control arises. It states that certain circumstances outside of the parties’ control may excuse them from performing their contractual obligations if those circumstances make it impossible or unreasonable for them to fulfill their obligations. Situations can include wars, natural disasters and other circumstances that are out of the party’s control. A force majeure clause is designed to protect both parties by ensuring that neither of them can be held liable if an event beyond their control happens — often referred to as an “act of God.”
An exculpatory clause is a contractual provision that essentially limits the liability of one party should an event occur that causes damage or injury. This type of clause essentially prevents a party from holding the other party liable for any resulting damages or injuries from a specific event. An exculpatory clause will generally only protect the party who might be considered liable.
Differences between the two
Though they both provide liability protection in one way or another for at least one party, there are major differences between a force majeure clause and an exculpatory clause. One difference is that force majeure clauses generally apply to unpredictable events that are outside the parties’ control, while exculpatory clauses typically only apply when a party could have prevented the event or occurrence. For example, if a tornado were to destroy a property, a force majeure clause would protect the tenant from having to maintain their lease and the landlord from having to rent to them.
In contrast, an exculpatory clause protects one party from being liable to the other party for any damages that may occur from certain events or actions related to their contract. An exculpatory clause does not necessarily void the obligations of either party. The clause simply releases one party from any potential liability from injury or damages, regardless of whether or not they were at fault. A common application of this is found in waivers for snowboarding, skydiving or skiing activities where the person agrees not to hold the company liable for any injuries.
Additionally, a force majeure clause usually applies to all obligations under the contract, while only a specific type of obligation or situation is covered by an exculpatory clause.