Understanding Your Force Majeure Provision - COVID-19 Alert
If your business has been impacted by the Coronavirus Outbreak and the most recent mandate of our governor to “Shelter in Place,” you are not alone.
Over the course of the past two weeks, we have been fielding calls and emails regarding parties’ rights and remedies in the face of the virus under their current contracts and leases. A number of questions surround the ability to invoke the Force Majeure provisions in those contracts and leases. Specifically,
- What is a Force Majeure Event?
- Does the CDC’s characterization of COVID-19 as a “pandemic” qualify as a Force Majeure Event?
- Or, does the government’s response to the pandemic mandating self-quarantines and “Shelter in Place” qualify as a Force Majeure Event?
Unfortunately, there is no clear answer.
As a nation, we have little history in experiencing Force Majeure events that affect the entire country. Force Majeure events at the local level are another matter. Think Hurricane Katrina in New Orleans in 2005, and the Great Chicago Flood of 1992. In those instances, areas of New Orleans and Chicago were actually inaccessible and closed for weeks.
Currently, we have “shelter in place” orders, but those orders have numerous exceptions. So, there is no clear precedent. This means these Force Majeure provisions will be argued and litigated for years to come. But, in the meantime, we are able to assist you in understanding these provisions and negotiating beneficial remedies.
ITEMS TO CONSIDER AND NEXT STEPS:
The key is to first review your contracts and leases in detail to determine whether they contain Force Majeure provisions. If they do not, don’t panic, there are common law contract doctrines that may be invoked.
If they do contain Force Majeure provisions, then you must focus on how Force Majeure is defined.
- Is it drafted narrowly and does the provision only list a specific set of events such as Acts of God or Acts of Government?
- Or, is it drafted broadly and does it include language such as “events beyond the reasonable control of both parties”?
If it is defined broadly, then you must consider, among other factors, whether the Force Majeure event is the sole effective cause of a party’s non-performance, that no alternative methods of performance are available and such non-performing party used reasonable endeavors to overcome the event.
The next step will be to identify who the Force Majeure clause benefits. Does it only excuse performance obligations of one party or does it cover both parties?
Another key consideration is to determine the timeframe in which the Force Majeure may be invoked. Does the Force Majeure provision allow for termination of the contract or lease if the Force Majeure event extends beyond a reasonable timeframe?
Finally, does invoking the Force Majeure provision require formal notice and what does the notice requirement in your contract or lease entail?
There are many questions that need to be answered. We are here to help you answer those questions as we continue assess the evolving impact of this pandemic on your businesses.
This is uncharted territory, but we will navigate it together. To discuss your specific questions and concerns, feel free to contact Stephen Golan (312-696-2031), Margaret Christie (312-696-2042), Anthony Taglia (312-696-2038), Darrin Baim (312-696-1350) or Joy Mkrdichian (312-696-1371).