Force Majeure Clauses Gain Prominence During COVID-19
The COVID-19 epidemic brought to the forefront a contractual concept known as “force majeure.” The term “force majeure” is a French phrase that means “superior or irresistible force.” In contract law, a force majeure clause excuses or delays a party from performing its contractual obligations under the contract due to unforeseen events or circumstances. This often-overlooked term became the focus of countless businesses and nonprofits unable to comply with their contracts due to the outbreak of COVID-19. As our nation deals with COVID-19 and other future outbreaks of disease, force majeure clauses need to be carefully analyzed to determine if they allow a party to escape its obligations. New contracts should be carefully drafted to ensure that COVID-19 or other similar outbreaks continue to constitute a valid reason to terminate or delay a contractual obligation.
A force majeure clause will typically list specific events or circumstances that will allow a party to terminate the contract or delay its performance. Some of the more common ones include the outbreak of disease, civil unrest, government regulation, curtailment of transportation facilities, natural disasters, or other “acts of God.” Some contracts will go into great detail about what exactly constitutes an “outbreak of disease” or other force majeure event. We are aware of contractual wording that defined an outbreak of disease as a force majeure event only if it were declared a level 3 pandemic by the CDC. The mere occurrence of the event of circumstance is usually not enough to terminate the contract – its occurrence must make performance illegal, impossible, or impracticable. These terms can be subject to dispute and interpretation. Unless the event or circumstance falls within contract’s parameters as a force majeure event, it will not be a valid reason to terminate the contract. Existing contracts should be carefully reviewed to determine if events or circumstances constitute a force majeure event.
Force majeure clauses will usually require notice of termination within a certain period of time after the force majeure occurs. For example, a contract may require notice of termination 10 days after circumstance causing a force majeure occur. If notice is not provided during this time period, the right to terminate the contract could be waived. Some contracts also limit the force majeure to a specific window of time. For example, a contract could state that an outbreak of disease is not a force majeure unless it occurs within 30 days of the start of a conference or other event. If you think a force majeure clause may allow you to terminate your contract you should seek competent legal counsel to advise you.
Going forward, it will be important for new contracts to be carefully drafted to allow for termination due to force majeure. The COVID-19 epidemic is no longer an unforeseeable event. Force majeure clauses in contracts that are entered during and after the COVID-19 outbreak may not allow for termination due to COVID-19. In most cases, customized wording will need to be added to the contract to allow for termination due to COVID-19 or other similar outbreak of disease. Other ways to lessen the risk of COVID-19 are to include clauses allowing smaller events to be held or otherwise minimizing financial obligations in the event COVID-19 persists as a problem. Regardless of the strategy used to draft around COVID-19, parties need to carefully consider how to structure their legal obligations to protect themselves due to COVID-19 or other difficult circumstances.
This article is provided for general information and should not be relied upon as legal advice for a specific situation. If you are in need of specific advice or legal representation, please do not hesitate to contact us.
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