Virtually every industry has been affected by the COVID-19 global pandemic and related government-mandated shutdowns. Much of the focus has been on keeping as many people safe and healthy as possible. However, if you neglect to determine how COVID-19 affects the health of your business, you do so at your own peril. Now is the time to review the terms of your contractual relationships.
Most contracts, involving either goods or services, will contain a force majeure or delay clause. The purpose of the force majeure clause is to address delays in performance caused by unforeseen circumstances for which neither party is responsible. These circumstances can include acts of God (floods and hurricanes) or acts of people (riots, strikes, and shutdowns). The COVID-19 pandemic and government response qualify as force majeure events. Because delays caused by force majeure events are outside of the parties’ control and risk assessment, it is fair to extend performance deadlines.
Therefore, it is important to review your contracts to determine: (1) whether they contain force majeure clauses; (2) whether and how deadlines are affected by the force majeure clauses; and (3) whether there are notice requirements for obtaining an extension of contractual obligations. The force majeure clause may contain time limits or other requirements for providing notice to make a claim for an extension. Additionally, the contract may require that you document how the force majeure event is causing delay in your performance of contractual obligations.
There are real risks if you fail to comply with these contractual requirements including – waiver of your contractual right to an extension of performance and liability for liquidated damages or other breach of contract damages. However, even if your contract doesn’t have a force majeure clause, common law doctrines of impossibility and frustration of purpose may provide some relief for a force majeure event.
It is important to be proactive in understanding your contractual rights and obtaining extensions of contract deadlines caused by COVID-19 if necessary. If you have any questions about the review of your contractual relationships, do not hesitate to contact the attorneys at Liff, Walsh & Simmons, who are experienced and available to assist you in this critical process.
James E. Crossan is a partner with the law firm of Liff, Walsh & Simmons where he represents business clients in a variety of litigation matters, including real estate and construction disputes. He can be reached at jcrossan@liffwalsh.com.
