Force Majeure clause

Force Majeure: What is it and should it be in my agreements?

In Contracts 101 by Shannon MontgomeryLeave a Comment

In light of the COVID-19 pandemic, we have been thrust into an unprecedented situation. Businesses across the globe have been ordered to close their doors and the ripple effect has affected both consumers and businesses. With companies unable to provide their goods/services, many are trying to find ways to protect themselves and avoid lawsuits. Enter the Force Majeure clause….

What is Force Majeure?

Force majeure is a French term which translates to “superior strength”. The term refers to extraordinary events that are beyond the control of either party to a contract and have the effect of preventing one or both parties from performing under the terms of the contract. If a contract includes a force majeure clause, the party that is impacted by an event of force majeure may be discharged from performing its obligations under the contract. Force majeure is governed principally by the terms of the contract, but if the contract does not have a force majeure clause, applicable state common law or statutory law may apply.

The general principles of a force majeure event are that:

• the event was outside the party’s reasonable control;
• it was not reasonably foreseeable the event would occur; and
• the party was not in a position to or was unable to prevent the consequences of the event.

Commonly a force majeure clause includes a list of specific events such as acts of God, labor strikes, power shortages, epidemics, war, or terrorist attacks.

Would COVID-19 qualify as a Force Majeure?

In light of COVID-19, customers and business owners alike are reviewing their agreements to see if force majeure can be implicated. For example, if you own a gym that’s currently closed, could you still require your customers to pay their monthly membership? And if you’re a member, could you get out of your contract? The answer is: it depends.

Contracts that explain specifically what will be covered by a force majeure clause are always more likely to hold up in court. The language in which a force majeure clause is written should be specific to your type of business. For example, a gym should include provisions for electrical outages caused by natural disasters, as well as any events (war, pandemic) that would impede their ability to remain open, etc. Every specific condition that is included in the contract provides you with greater protection.

So would COVID-19 qualify as a force majeure? Unfortunately, there is not an absolute answer because it depends on the specific contract language and each party’s obligations under the contract.

Even if “pandemics” is explicitly listed on the agreement, it would still need to consider the impact of COVID-19 on the service provider’s ability to perform under the agreement.

So What Now?

As the saying goes “luck favors the prepared.” Take some time to think about what uncontrollable situations could affect your business and incorporate them into a force majeure clause for your business agreements. Doing so may help you down the line when you least expect it. If the COVID-19 pandemic has shown us anything, it’s that life can change in the blink of an eye.

If you need help creating a force majeure clause for your business or have questions about an existing agreement, feel free to contact me at Montgomery Law though the contact section of the website or you can email me at Shannon@montgomerypllc.com.

 

Please note that this article is not meant to be legal advice for you or your situation, this is merely some legal research and knowledge on the given topic.

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