COVID-19 Force Majeure Clause
From production to distribution, wholesale to retail, all around the world businesses are shutting down and ceasing work. Without an income source, these businesses may not be able to pay their bills. With COVID-19 seemingly becoming a bigger threat, there is not a guaranteed return date and no end in sight for their financial struggles. Many businesses are now turning to the fine print of their contract or leases to determine if they have a “force majeure clause,” and whether that clause would apply to their situations under COVID-19.
Force majeure translates from French as ‘”superior force.” A force majeure clause is a provision in a contract that excuses a party’s performance of contractual obligations when unforeseen circumstances arise that are not at the control of either side of the contract. These circumstances, often termed “acts of god” create situations that make performance under the contract commercially impracticable, illegal, or impossible. These clauses are very common in many types of contracts, but often these clauses are removed or modified to a version that would not apply to the COVID-19 virus. Force majeure clauses are typically applied to contracts for goods and services rather than a contract to pay money. These clauses are often overlooked in contracts because it relates to “unforeseen circumstances,” which believe it or not, are regularly unforeseen as a necessary clause in the lease or contract. As many people are now finding out, these clauses play a vital role in governing a contract during the unforeseeable.
Depending on the wording of the clause in the contract, a force majeure clause can have a variety of outcomes including excusing a party from performing under a contract, suspension of performance, giving one or both of the parties an option to terminate the contract, or a substitution of performance under a contract. Courts will often construe force majeure clauses narrowly based on their writing, and most contracts do not adequately anticipate pandemics. If the clause in your writing is narrowly written, the courts are likely to enforce it narrowly. However, if your clause is too general, it may not have the wording sufficient enough to encompass your specific force majeure need. The perfect force majeure clause is somewhere in the middle between narrow and generally written.
Force majeure clauses are not limited to commercial contracts. These clauses can be found in contracts in virtually every industry. If you are a tenant that is out of work due to COVID-19, are you required to pay rent? If you are a buyer under a purchase and sale agreement for a house but can no longer qualify for the mortgage, are you required to perform under the contract? Question such as these could be easily answered if you resort to a properly written force majeure clause. If you lease or contract is missing the clause entirely, or if the clause is written in a way that you are unsure whether it fits the COVID-19 crisis, it will take a deeper look into the fine print and meaning of the clause in your particular contract.
When this virus is over with, you are likely going to see a flood of eviction, foreclosure, and breach of contract actions using force majeure as a defense. COVID-19 related damages will likely be upheld in many of these actions with a properly written force majeure clause, however the majority of contracts will be rejected due to their inadequate wording. It would be wise to have your contract reviewed by an attorney as early as possible to determine exactly how to proceed under your contract. If you are questioning whether your force majeure clause is enforceable give The Orlando Law Group a call today.