As the number of Coronavirus (COVID-19) cases in the United States and Internationally continues to rise, many business owners are feeling the effects of quarantines, social distancing, travel bans, and more. In the short amount of time since the virus has emerged, businesses, especially in the hospitality and service industries, have experienced significant and devastating disruption.
What is a Force Majeure Clause?
A Force Majeure clause is a provision in a
contract that allows for a party to suspend or terminate the performance of its
obligations when certain circumstances beyond their control arise, making performance
inadvisable, commercially impracticable, illegal, or impossible.
Examples of Force Majeure events include war,
riots, fire, flood, hurricane, typhoon, earthquake, lightning, explosion,
strikes, lockouts, slowdowns, prolonged shortage of energy supplies, and acts
of state or governmental action prohibiting or impeding any party from
performing its respective obligations.
Force majeure clauses must be clearly stated in the Contract and are interpreted strictly.
Is Coronavirus a Force Majeure Event?
The severe disruption to businesses around the
world, resulting from the effects of Coronavirus (both physical and emotional),
are clearly affecting business owner’s ability to function in the declining
economy. In approaching business
operations and all the contracts that accompany the same, you may be wondering
“can I get a break” and the Force Majeure clause may be the way to get just
that. While unfortunately Coronavirus is not likely to be specifically stated
in your clause, as it is a world event unanticipated in our lifetime, it can
most certainly be argued that, depending on the business sector, the response
to the Coronavirus (such as mandatory lockdowns, social distancing, and
business closures) are in fact acts of
government which are impeding a party from performing its respective
obligations. It may not fully excuse non-performance or cancel
existing contracts, but in some cases may defer or alter the terms.
What Does this Mean
For these reasons it is vital that business owners
carefully review the language of their agreements, and not simply choose not to
perform and expect to escape without consequences. In entering this
uncharted territory of business operations in a consumer panicked society, it
is important the business leaders in the industry stay calm and solution
oriented by doing the following:
Detailed Review – Review every contract you have that requires some form of fulfillment of goods or services, or some sort of financial action or commitment over the next 6 months.
Be Proactive – Reach out to your business contacts regarding the impact of the Coronavirus. It is likely that they too have felt the effects and discussing how to mitigation potential damages is valuable to all parties.
Modify your Clause – Whilst the world hopes that we never see another pandemic as tragic as Coronavirus, this should be a wakeup call for all contract participants to ensure that the Force Majeure clause is included in every contract and shall include the extreme scenarios.
Retain Legal Assistance – If you, your business, your real estate, or your pending construction is at risk, contact Gulati Law to discuss your options. As a firm with vast experience dealing with contract delays, performance challenges, payment concerns and force majeure clauses we have the skills to assist you through this difficult time and preserve your current relationships. Most importantly stay safe!