Keeping In Touch For Your Legal Health

Social distancing is critical now. But it’s also important to protect your legal rights by keeping in touch with your landlord, your lender, your contractors, and with everyone who expects you to pay or perform your end of a contract.
 

Force Majeure Provision

What do you do when you can’t perform under a contract due to the pandemic?

Many contracts contain a clause known as a “Force Majeure” provision.  This is just a fancy way of saying an “act of God” or the circumstances are out of my control.  Such a clause may provide legal grounds to delay or even excuse performance, including delayed payment.

An act of God includes hurricanes and significant, destructive weather events, but some provisions include earthquakes, labor and materials shortages, and even, you guessed it, public health situations such as epidemics or pandemics. Such situations can cause delays in the supply of equipment or delay of governmental approval of necessary licenses or permits. How much you benefit from this provision depends on the exact wording in your contract.

Other Possible Protections

If your contract or lease does not contain a force majeure provision or, if it is there, it may benefit only the other party to the contract and not benefit you. If so, you may still have legal theories available to protect you. These arguments include the concepts of “impracticability” and “frustration of purpose.”

In short, impracticability means that your lack of performance (which normally would constitute a breach of contract) is excused because an unexpected and unforeseeable event has made performance impossible to carry out. An example might be your inability to provide a finished product because the components are made overseas, your supplier cannot obtain them, and you cannot find an alternative supplier, all because of a pandemic that is out of your control. (Read more about impracticability here.)

Frustration of purpose is another legal concept similar to impracticability.  Under this theory,  the unexpected and unforeseeable destroyed the purpose of the contract. For example, if you are contracted to make 2020 Olympic shirts, even if you can get the materials, the 2020 Olympics are postponed. Most likely you will need to provide 2021 shirts. The very purpose of the original contract no longer exists.

How do I protect myself in these times of uncertainty?

The focus on communication is more important than ever:

• Stay in touch with the other party.
• Explain why your performance is almost impossible now or no longer serves any good purpose.
• Try to renegotiate the timing.
• Document all communications in writing.

Do all you can to maintain goodwill and good faith and protect your legal rights at the same time.

 

Steve Walker is an attorney for Moorhead Real Estate Law Group

Steve’s primary focus has been in all facets of real estate and real estate finance law, including representing lenders, sellers, buyers, developers, builders, and title companies.