In today’s COVID environment, businesses are being told to close their doors and send employees homes. As such, many business owners are struggling to earn enough revenue to be able to meet their contractual obligations to their vendors, landlords and banks, let alone make payroll. With financial disaster looming for so many businesses, do standard contracts, loan documents or leases consider “Acts of God” as a way to push pause on a business owner’s obligation to preform until such time that the world returns to normal? The simple answer is, “maybe”. It depends on whether your contract has a Force Majeure clause.
What is a “Force Majeure”?
Force Majeure refers to an event which is completely outside the control of a party to a contract. Force Majeure events can potentially be a condition that will allows for a business owner to be relieved of their contractual obligations for a specified duration of time.
Is COVID-19 Considered a Force Majeure?
Many contracts already contain specific language that outlines exactly what type of an event is considered a Force Majeure. Examples of common events listed in force majeure clauses may be natural disasters, acts of terrorism, epidemics, nuclear war, or even a pandemic. If your contract specifically discusses force majeure events, and one of those listed events is indeed a “pandemic” than bringing a force majeure claim will be much easier. If the language of your contract talks in broader terms such as “Act of God” the ability to make a Force Majeure claim becomes more complicated.
However, just because a contract contains a Force Majeure clause, doesn’t necessarily mean it applies and gives your business relief from paying. It all depends on the language, notice requirements and more.
If your contract doesn’t speak to specific Force Majeure events, what criteria is commonly used to decide if current events are eligible?
In absence of specific Force Majeure events being listed within a contract, the following questions are generally posed to current conditions to determine if the situation qualifies.
- Was the unforeseen event beyond the reasonable control of the affected party?
- Did the event prevent, impede or hinder the affected party’s ability to perform on their obligations?
- Did the affected party take reasonable steps to mitigate the unforeseen event?
How do I know if I can make a Force Majeure claim?
Successful Force Majeure claims can be what ensures a business will survive uncertain times, so they are worth exploring in detail. The first step is to have your documents and/or contracts examined in their entirety by a competent, licensed business attorney. Even if your contract indicates a clear provision for pandemic, there will still be a series of notices and documentation that must be exchanged amongst the parties. A solid attorney is the best resource to help you navigate this. If your contract or document doesn’t speak specifically to a pandemic, an attorney can assist you in making the case that COVID falls under another event that may be discussed in the Force Majeure clause of your contract or document.
Give us a call today. We can review your contracts, leases and promissory notes and let you know what your options are. These are difficult times and Business Law Southwest is here to help.
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