Contract Obligations and Force Majeure

March 24, 2020

Global pandemic, COVID-19, Corona Virus, Governmental Shutdown Orders. These are words we have all become familiar with recently. Perhaps your business is closed, maybe you are scaled back to part-time work or remote work.

Are you a party to an agreement, lease or contract that has been impacted by COVID-19? Are your procurement contracts being fulfilled? Are your tenants paying their rent? Are you going to be able to complete construction on time?

The first thing to do is to pull out a copy of the contract.
It may contain a force majeure clause. You may say “a what clause”? It basically means something extraordinary has interfered with performance under the contract.

Will this excuse you from performing your obligations?
Perhaps protect you from paying damages? Will it allow you to stop paying rent? Provide additional time to perform or complete your obligations? Permit you to retain funds?

That depends upon the specific language in the contract.
Does the force majeure clause require you to notify the other party within a certain period of time of the force majeure event that you are relying upon in the clause? When did the force majeure event officially occur? Is it ongoing, permitting you to delay when you give notice? You may be entitled to an extension to perform. Is the clause broad enough to cover a pandemic or viral outbreak? There are many issues to be considered. We need to look at whether the clause is enforceable. Did it apply equally to both parties or was it one-sided?

All of these issues will be arising in the weeks and months to come. There are other contract concepts that will need to be reviewed and considered.

If you get through this pandemic without a contract enforcement issue, you are very fortunate. It is a good time to pull out any form contracts you use and reconsider them in light of events that were likely never contemplated when the contract with written – a global pandemic.

Wishing you good health and a quick end to COVID-19. Please Feel free to contact Merle Ochrach, at (215) 661-0400 or with any questions related to force majeure, contract enforcement and other pandemic related issues. Although our offices are closed for the safety of our employees and clients, we are available to assist you remotely.

Questions Every Business Must Ask

Q. Has your business recently reviewed its legal structure to determine whether it is set up in the most advantageous manner for legal and tax purposes, considering recent developments and changes in the law?

Q. Do the owners of your business have a current, updated buy-sell agreement which controls how ownership interests in the business are to be transferred in the event of an owner’s death, disability or termination of employment?

Q. Have the owners of your business developed a succession plan to define how ownership and authority will transition upon the death or retirement of the present owners?

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