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Contracts & Coronavirus

Updated: May 5

Force Majeure Clauses and COVID-19



Do your contracts speak to what happens when a pandemic like Coronavirus hits? Given the current state of emergency, it's a good time to review contracts to see if they include a Force Majeure Clause (a.k.a. Act of God Clause) which may excuse, delay or postpone performance based on COVID-19. Such key words like "diseases”, “epidemics”, “quarantines", "government intervention", "act of government", or even a broad catch-all like "Act of God" may provide justification.


If your contract does include an Act of God clause, review the clause's language and exercise your rights accordingly. Consider legal counsel to prepare a written notice to be duly executed by all parties.


If your contacts do not include such clauses, determine whether specific performance is still viable. Some business contracts can still go forward, as long as the banking system keeps running, and in some instances like real estate transactions, if the recorder's office and title companies are open as well.


Current conditions add another layer to consider with regards to marching forward. If a party asserts Coronavirus to excuse performance simply as an "out" to take advantage of market conditions, the non-breaching party may want to hold the breaching party's feet to the fire.


But what if a person is subject to a layoff that's been occurring nationwide? A party may fall out of contract due to a job loss and breach the contract to no fault of their own. Without a force majeure clause, the breaching party may be out of luck. Parties can consider legal counsel to prepare an addendum for existing contracts, and as a best practice, may want to amend contract templates to account for these types of events moving forward.


Consider this: This is a time where we need to work together and with reasonableness. While we can hold hard and fast to contract terms, it's important parties communicate and work together towards resolution. This is especially important as courts limit cases or temporarily suspend administration. Extending a little bit of understanding in an unprecedented time can go along way to preserving business relationships.


Keegan Law is open, and ready to review and handle your existing contracts in light of Coronavirus.


March 22, 2020


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