Force Majeure and COVID-19
A force majeure provision relieves a party from its obligation to perform under a contract when circumstances beyond the party’s control have rendered performance impossible or impracticable.
The global economic impact of the coronavirus (COVID-19) is being felt locally, and nearly all businesses have been forced to make significant adjustments to their operations to avoid shutting down entirely.
As businesses make those adjustments, many are left wondering how, if at all, they will be able to keep up with their existing contractual obligations. That analysis will likely involve a careful review of a provision common to most contracts referred to as force majeure. Generally, a force majeure provision relieves a party from its obligation to perform under a contract when circumstances beyond the party’s control have rendered performance physically and/or economically impossible or impracticable.
Until recently, force majeure provisions were overlooked as standard “boilerplate” contract language. That is largely because a party seeking relief under a force majeure provision must be able to demonstrate extraordinary circumstances preventing them from complying with a contract. Typical examples of force majeure events include extreme weather, terrorism, war, riots, government regulation/legislation, lockouts, strikes, etc.
With the outbreak of the COVID-19 pandemic, force majeure provisions are returning to the forefront of contract law and are particularly relevant in landlord-tenant and owner-contractor disputes.
The applicability of force majeure clauses to COVID-19 will vary depending upon the language of the specific clause. For example, certain clauses list the specific conditions that will be considered a force majeure and therefore relieve a party of liability under the contract. For those contracts, a party’s performance under the contract will likely not be relieved absent a specific reference to a pandemic, outbreak of disease, or other “catch-all” term. Alternatively, other force majeure clauses are drafted more broadly, leaving more discretion for the inclusion of pandemics such as COVID-19.
Assuming the applicability of a force majeure provision to COVID-19, parties will still need to analyze whether their failure or inability to perform under a contract was caused as a direct result of COVID-19 and the resulting conditions, such as travel restrictions and/or quarantines. To maximize the chance of a successful force majeure claim, parties should gather as much documentation as possible demonstrating the relationship between COVID-19 and their failure to perform under the contract. Such evidence should include relevant declarations from the World Health Organization (WHO), Centers for Disease Control and Prevention (CDC), state and local governments, and any other relevant organizations.
Additionally, parties must consider the terms of the force majeure clause itself in the context of the remainder of the contract. For example, the contract might contain certain notice provisions that a party is required to abide by in the event of a force majeure or other anticipated inability to comply with the contract. Alternatively, the contract may provide for specific dispute resolution measures. Failure to comply with the specific terms of the contract risks a party waiving their right to seek relief under a force majeure provision.
Finally, a party seeking relief under a force majeure provision must demonstrate that it exhausted all reasonable means of compliance with the contract. Parties should carefully document the alternative means of compliance that were considered and the reasons they were either rejected or impossible. This mitigation of damages will necessarily involve communicating with the other party or parties to the contract and attempting to negotiate an alternative means of compliance and/or a temporary forbearance of the contract until the conditions created by COVID-19 have ceased. A party should seek relief under a force majeure provision only after the alternatives have been exhausted.