COVID-19 is a Force Majeure Event – What Does That Mean?
Force Majeure: It’s Out of Control
“Force majeure” is one of those legal terms that might be hard to explain (and spell), but you know it when you see it. The term literally means “superior force,” but it has come to mean any extraordinary event that is beyond the control of contracting parties. Force majeure events might include acts of God (like hurricanes, tornadoes, floods, earthquakes, or volcanic eruptions) as well as man-made circumstances (like war, riots, strikes, or government action).
Many commercial contracts have a force majeure clause. The force majeure clause usually appears towards the end of the contract, with other miscellaneous or boilerplate terms. The purpose of a force majeure clause is to relieve one or both parties from performing certain duties during circumstances outside their control.
A typical force majeure clause is:
Force Majeure. A party shall not be liable for any failure of or delay in the performance of its obligations hereunder for the period that such failure or delay is due to causes beyond its reasonable control, including but not limited to transportation or carrier delays, shortage of materials, shortage of labor, labor dispute, picketing, strike, unavailability of utility services, acts of God, acts of a public enemy, storm, flood, earthquake, tornado, hurricane, tsunami, other act of nature, fire, explosion, riot, protest, sabotage, pandemic outbreak, war, civil disturbance, political unrest, terrorist or other criminal act, embargo, judicial, executive, or other government order. If a delay continues for a period of more than sixty (60) days, either party may terminate the Agreement upon written notice to the other party, with all payments and liabilities accruing through the date of termination.
COVID-19 Creates Multiple Force Majeure Events
The worldwide spread of coronavirus, outbreaks of the COVID-19 disease, and government and industry measures to control the pandemic all create immediate force majeure events and the potential for future events.
As of this writing (March 22, 2020), several state governments have imposed lockdowns on most face-to-face business and recreational activities, and all states have taken some measures to limit transmission of the coronavirus. In Florida, Governor DeSantis’ Executive Order No. 20-71 closes all restaurants and bars to on premises service. Restaurants and bars are prevented by government action from carrying out their normal business. However, many lease agreements require restaurants and bars to be open during certain hours and to continue business without interruption. The governor’s order creates a force majeure event that should relieve restaurants and bars from their lease obligation to stay open while the order remains effective.
As more and more workers (or their family members) come down with COVID-19, labor shortages might follow. This could make it difficult for contractors to fulfill their contracted delivery schedules. For instance, if a contract brewer is required by contract to finish an order for contracted beer within a 45-day period, that might become difficult if all the brewers call in sick, are quarantined, or are required by a government order to stay home. Even if things are not so bad in Florida, for instance, the impacts of the disease in Washington could make it difficult for breweries to get hops for several months. These might create additional force majeure events.
Read Your Force Majeure Clauses
All business owners should pull out their contracts and look for the force majeure clauses. This is especially true for beverage industry members–breweries, wineries, distributors, and retailers–who are likely to be especially hard hit by COVID-19 and government intervention to control the pandemic.
In reviewing a force majeure clause, focus on these questions:
- What circumstances or events are covered?
- Which party is relieved from liability because of a force majeure event?
- Is there a time limit on how long relief from liability continues?
- Is the party affected by the force majeure event required to notify the other party or take other steps?
- Does the continuation of a force majeure event give either or both parties the right to terminate the agreement or take other actions?
A word of caution: While most commercial lease agreements do include a force majeure clause, in most cases they do not relieve a tenant from its obligation to pay rent during a force majeure event. However, every tenant should review the force majeure clause in its own lease agreement.
Do you have questions about a force majeure clause in your contract? Contact us at firstname.lastname@example.org to schedule a 15-minute introductory call at no charge.
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