By Associate Attorney Danielle Nodar
While the world reels from the impact of government-mandated shutdowns and the threat of illness due to coronavirus, many businesses are reexamining their contracts to determine their obligations and rights during these unprecedented times. Some contracts may contain a force majeure clause excusing the parties from performing under the terms of the contract. A force majeure clause allows parties to cancel or delay the performance of their obligations, or even terminate the contract altogether, if it is impossible for a party to perform due to events that cannot be reasonably anticipated or controlled by the parties.
But not all force majeure clauses are created equally. A sample force majeure clause might look something like this:
"The Parties’ performance under this Agreement is subject to acts of God, war, terrorism, disaster, government regulation, or any other emergency beyond either Parties’ control which makes it impossible for a Party to perform their obligations under this Agreement. Either party may cancel this Agreement for any one or more of such reasons upon written notice to the other Party."
Some force majeure clauses may excuse performance of one party but not the other. Or, perhaps performance is excused by not the payment of money. For example:
"Other than for Tenant's obligations under this Lease that can be performed by the payment of Rent, such party shall not be responsible for any delays due to strikes, riots, acts of God, shortages of labor or materials, war, or acts of terrorism, or any other causes of any kind whatsoever which are beyond the control of such party."
If your contract contains a force majeure clause, is coronavirus a triggering event? Perhaps if the contract explicitly mentions government-mandated closures or pandemics, but what about disasters or acts of God? Before you decide not to perform, you should get advice from an attorney who can interpret the contract for you. If the other party disagrees with you, litigation over whether or not coronavirus is a triggering event will be costly and time consuming. It is normally in everyone’s best interest to negotiate.
If you have questions about how your contractual obligations may be impacted by coronavirus, your rights under a business contract, or your options to alter or terminate a contract, please contact Jesson & Rains.
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Kelly Rains Jesson