COVID-19, Force Majeure, and Commercial Contracts

Oh, the Force Majeure clause. Almost always towards the bottom of the commercial contract (usually in all the boilerplate), often overlooked, sometimes skimmed, and suddenly relevant. People think of Force Majeure as a hurricane or an earthquake, but what about a pandemic?

The Force Majeure clause – aka “Act of God” – is going to become highly relevant in the coming weeks. This is a contract provision that may relieve the parties from performing contractual obligations for a period of time or even allow the parties to terminate the contract when certain circumstances arise beyond their control. Meaning: you might have an out for your obligations on your lease or contract.

Well, when all the ski resorts close, the supermarket shelves are empty, people are socially distancing themselves, restaurants and bars are closing, and the U.S. declares the pandemic a national emergency – maybe there are just a few circumstances right now that are beyond our control. But when does the “force majeure” clause come into play?

The answer, as always, is: “It depends.” What does your contract say? Does it say something about pandemics? No? Maybe there’s broader language that applies to your situation? For example, did a venue shut down so no you cannot perform your job? Has it become impossible to perform the obligations under the contract? By the way, we are in totally uncharted waters here – many contracts are unclear on this. Now is a good time to think about what language you have in place and what you might want to have in place moving forward.

Next, as business owners, understanding our legal rights is just the first step – we still need to decide on the right course of action. Just because you can get a refund, should you? We make choices every day about how we function in business because we want to keep customers happy, reviews positive, and people coming back. Our choices are our brand, and how do we balance the needs of our company, our clients, and our bank accounts? These answers are not always easy, but once you know what you can do with your contract, you’ve conquered step one. The next few weeks or months will be one step at a time.

Breaking a contract for force majeure will always be unique to the business situation and highly dependent on the wording of the contract. If you want help assessing the impact of the coronavirus outbreak on your business or in your contracts, we’re here to help.

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