Many of our clients are already hearing phrases like, “acts of God” and “force majeure” from the other party in their contracts–some are trying to get out of the agreement and others are trying to stay the course.  Regardless of which side you find yourself on, you need to know the following information in order to navigate our new reality.

The term “force majeure”, a common law phrase and clause seen in business contracts, is used to define a situation where one or both parties feel they should no longer be responsible  to perform obligations under the terms of a contract – such as during a pandemic.  Your customers, in the wake of a global pandemic, will be referring to this section of the contract to determine whether they can cancel the contract with no penalty.

force majeure: unforeseeable circumstances that prevent someone from fulfilling a contract.

Other people who are vendors are rushing to add these provisions to their contracts, without realizing that they are actually adding in an excuse for non-performance, which is definitely not what they should be doing right now.

Regardless of your particular contract’s terminology, you can recognize a force majeure clause,  when you come across  an exhaustive list of potentially “unforeseeable events,” or what is out of the control of the service provider, that still result in payment or partial payment set out in the contract.  It’s designed to offer clarity – and not be leftto the interpretation of a judge or jury – should the affected party decide to terminate or otherwise fail to perform.

When you see this, you need to first think about whether or not you want there to be an automatic reason for non-performance, whether or not it benefits your business, or the other party more, and whether you want to better define the circumstances that you would feel would be an acceptable reason to terminate.  However, often times our clients who are performing/working and simply waiting for payment would be better off without a force majeure clause.

“You would think a global pandemic is about as ‘unforeseeable’ as a tsunami when it comes to force majeure,” said Robert R. Pellegrini, Jr. Esq, president of PK Boston Law. “However, contractors are adding new language that includes “pandemic,” to cover their bases in 2020 and beyond.”

“a portion of your updated force majeure clause may include … hurricane, flooding, storms, explosions, infestations, epidemic, or pandemic (specifically including COVID-19)…”

What should a new business contract include?

It may become more difficult to argue that a pandemic was “unforeseeable” the longer the pandemic is disruptive, says the National Law Review, so companies should be hesitant to rely on broadly drafted force majeure provisions.

To be more specific, you may even want to  include the word, “pandemic” (even “COVID-19” by name) in the list of force majeure events in contracts going forward.

Business owners should consider a variety of force majeure terms and work with their clients to be flexible.  For example, you should be very careful before excusing performance, and also consider whether or not to terminate or to pause the contract until the end of the situation.

Do I need an attorney to look over my contract changes?

As you can see, there are many considerations involved when considering what should and should not trigger an event that will automatically amend your contracts.  This should not be taken lightly and should definitely not be rushed.

However, with careful drafting and consideration, this language might mean the difference between continuing, or closing, your business.  In drafting a better force majeure provision, your business can more confidently plan for future events in the middle of a global emergency.

PK Boston Law is a full-service law firm that offers legal counsel to real estate developers, contractors and businesses in the Greater Boston area.

Robert Pellegrini
President

The above information is designed to provide a helpful overview of a relevant topic. It does not constitute legal advice nor should it be construed as such. Please do not take action based on the above information without seeking formal legal advice. If you would like additional information, please contact Attorney Robert Pellegrini, Jr. at (508) 807-1131 or email us at info@pkboston.com