Dinse Brief: COVID-19’s Impacts on Contracts and Leases
As the COVID-19 pandemic continues to spread and the world’s response continues to evolve, businesses both in the United States and abroad are faced with uncertainty of COVID-19’s impact on their present obligations under their existing contracts and leases. This memorandum focuses on the interplay between COVID-19 and provisions that may invalidate a contract or lease, or excuse your obligations to perform under such agreements.
Many contracts contain “force majeure” provisions, or in the case of some leases, “casualty” provisions. Under certain limited circumstances, these provisions allow a party to a contract to be relieved of their obligation to perform under the contract (e.g., deliver goods, pay rent, etc.) where an event beyond their control prevents them from performing. The specific language of “force majeure” provisions vary, so the ability to avoid an obligation under a contract or lease will be case and language specific. Generally, the “test” for whether a force majeure provision apples requires an inquiry into three factors:
(1) The event must be beyond the reasonable control of the affected party
(2) The affected party’s ability to perform its obligations under the contract must have been prevented, impeded, or hindered by the event; and
(3) The affected party must have taken all reasonable steps to seek to avoid or mitigate the event or its consequences.
We recommend using this checklist to evaluate whether your “force majeure” clause might apply:
• Review definition of “force majeure” or “casualty” in your contract or lease to determine if there is express language covering COVID-19 (for example, “pandemic”) or if there is general language sufficient to include COVID-19.
• Consider the aspects of the contract or lease that you are not able to perform and confirm that you cannot perform those aspects due to the consequences (direct or indirect) of COVID-19.
• Review the mitigation steps you have taken to avoid or reduce the effects of COVID-19 upon your work force and contract or lease performance.
• Check your contract or lease for notice and documentation requirements—you may be required to send notice to the other parties to the contract or lease to trigger entitlement to relief.
• Consider what relief you seek if your claim is successful (delay, cancellation, etc.)
We are happy to work with you to help you understand the application of a “force majeure” clause in the time of COVID-19. For more information, please contact:
Brian Murphy (email@example.com), Dave Gurtman (firstname.lastname@example.org), Shap Smith (email@example.com), or Carol Pfeiffer (firstname.lastname@example.org).