In March 2020, businesses worldwide closed their doors to slow the spread of the COVID-19 pandemic. Some suppliers struggled to fulfill orders, while some buyers suddenly found themselves with more products than they could reasonably sell due to reduced customer traffic. Tenants struggled to pay rent, while landlords struggled to pay their mortgages.
The COVID-19 pandemic has had a profound impact on our economy. Read on to learn more about the effects of COVID-19 on commercial contracts, and how it has shaped them for the future.
The Force Majeure Clause
A force majeure clause releases parties from their obligations if certain circumstances beyond their control make it substantially difficult or impossible for the party to perform. The COVID-19 pandemic may qualify as a force majeure event—but it entirely depends on interpretation.
Many clauses can only be invoked if they are specifically worded. Some force majeure clauses directly mention ‘pandemics’, whereas others only apply to ‘government-mandated shutdowns’ or ‘forced closures.’ This means that a business owner may not be able to invoke the force majeure clause if their business is closed for a reason that is not specifically stated, although some contracts include catch-all provisions.
There are additional defenses a business owner may explore if they are struggling to perform their contractual obligations and cannot invoke a force majeure clause. Common law defenses such as impossibility, impracticability, and frustration of purpose could be utilized, although these defenses require a high burden of proof.
The Future of Commercial Contracts
Many businesses tend to use standardized boilerplate contract documents, typically as a means to reduce costs and increase efficiency. While these contracts are sufficient in a pinch, they do not always include the specific provisions and clauses that offer the best protection, leaving business owners exposed to potential legal concerns. Some of these boilerplate contracts do not even include a force majeure clause.
Future commercial contracts will certainly require more attention to be paid to additional provisions, including force majeure clauses, as business owners take further steps to protect their assets and livelihood.
At Hoover Slovacek, we have an entire department dedicated to contract creation, review, and reconciliation—as well as litigation. Led by Greg Savage, our team can help business owners draft and review commercial contracts, including the proper protection for future events. Visit our website, or call (713) 977-8686 to get started.
