The Force Majeure clause is getting a lot of attention these days, thanks primarily to impacts the COVID-19 pandemic is having businesses. This clause is a contract provision that excuses a party’s performance obligations under the contract when specific circumstances that are out of the party’s control make it impossible, illegal, or impractical to meet those obligations.
The Force Majeure clause generally contains a detailed list of qualifying situations and events. Terms and clause provisions vary in length and specific terms, but generally cover “Acts of God“, war and terrorist attacks, strikes, fire, flooding and, more recently, pandemics and epidemics. The clause may specify that the covered party is released from all further obligations or that contract fulfillment may be delayed until such time as it is possible to do so.
The Force Majeure Clause Provides Financial Protection
A Force Majeure clause provides protections for both contracted parties, but most particularly for the business side. It allows the business to excuse themselves from their contracted obligations entirely or until the Force Majeure event is resolved, depending on how the clause is worded. The business is usually allowed to keep their retainer, deposit, or otherwise predetermined percentage of full payment if they are forced to cancel their work; again, this depends on the contract language. The clause can also protect the client in a similar way by releasing them from obligations for the full payment of the contracted work or service if an unforeseeable situation arises.
The tricky part about Force Majeure clauses is that they are so very specific. A qualifying event must be explicitly listed in the clause and must be directly responsible for your inability to meet the contract obligations. In general, the courts require that qualifying Force Majeure events make it legally or physically impossible to meet contract obligations. The events can’t merely cause an inconvenience or economic restraint on either party.
Are your contracts up-to-date with the strongest Force Majeure clause possible? Do they include pandemics as a qualifying event? Do you know what’s included in your clause and what it means?If not, contact me at [email protected] for assistance in updating your contracts.
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