Force Majeure Clauses in Development Agreements
By: Clay Karwisch
A recent Idaho Supreme Court case has important lessons for drafting force majeure clauses in development agreements. In Burns Concrete v. Teton County, the Idaho Supreme Court held that a force majeure clause in a development agreement was broad enough to apply to Teton County’s failure to grant appropriate approvals for the construction of a concrete plant contemplated by the development agreement. In the case, Burns Concrete (the Developer) acquired property zoned for commercial use, and successfully applied to have the zoning changed to industrial. Under the applicable zoning ordinance, buildings in the industrial zone could not exceed 45 feet in height unless approved by a conditional use permit. The Developer made a timely application for a conditional use permit to exceed the height limitation, which the planning and zoning office recommended for approval.
After the property was re-zoned, the Developer and the County entered into a development agreement requiring the Developer to build a 75 foot concrete plant. The development agreement stated that the Developer must commence construction on the facility immediately, with construction to be completed within 18 months. The agreement contained a force majeure clause that provided that the requirement to complete construction within 18 months was “subject to delays resulting from weather, strikes, shortages of steel or manufacturing equipment or any other act of force majeure or action beyond Developer’s control.”
A few months after entering into the development agreement, the County denied the Developer’s request for a conditional use permit. Since the permit was denied, the Developer was unable to commence construction of the plant, but did construct a temporary plant on the site as permitted by the development agreement. After extensive litigation related to the denial of the conditional use permit, the County informed the Developer that it was revoking its authority to operate the temporary facility and then sought to have the zoning of the property revert to commercial use.
The Developer filed suit, arguing that its failure to complete construction within 18 months was excused by the force majeure clause. The district court held that the force majeure clause only applied to unforeseeable circumstances, that the County’s refusal to approve construction of a 75 foot building was foreseeable, and that the failure to include such an occurrence in the force majeure clause meant that the Developer assumed the risk of having its conditional use permit denied.
The Supreme Court, however, vacated the district court’s judgment. The Supreme Court held that the failure to gain approval to construct a 75 foot building was not reasonably foreseeable because the development agreement required the Developer to construct a plant that was 75 feet high. The Court held that it was not foreseeable that the County would require the Developer to build a plant 75 feet in height in the development agreement, and then prevent Developer from doing so. The Court also held that the wording of the force majeure clause did not limit the clause’s application to the types of events specifically mentioned. Since the clause included the language “or action beyond Developer’s control,” the Court held that the force majeure clause also applied to acts of a type not previously mentioned in the clause, and that the County’s conduct clearly constituted an action beyond Developer’s control.
The outcome in this case turned on two key factors. One, the force majeure clause included a broad catch-all provision covering all actions “beyond Developer’s control.” Developers should make sure to include such a catch-all provision in any force majeure clause in their development agreements. Including such a catch-all, however, is not fool-proof. Developers can further protect themselves by carefully considering the events or circumstances that could delay their performance, and if such events or circumstances are beyond their control, those factors should be specifically included in the force majeure clause.