Have you updated the Force Majeure clause with COVID-19 in your existing contracts?
If not, this is the best opportunity to modify the existing clause in all your legacy contracts and include it in future contracts.
Force Majeure clause is one of the important clauses to include in a contract that relieves the parties from performing contractual obligations. It is also important to cover as many events as possible within this clause. We have learned enough from the historical events how unforeseen events may impact the business and liability, such as large-scale disasters like Hurrian Katrina 2005, the terrorist attack in 2001, and now COVID-19.
It is a contractual language intended to anticipate unforeseen events and provide for what happens on their occurrence. Any event that leads to non-performance of contract obligations should include in the Force Majeure clause including the COVID-19 pandemic. We have seen in the past how this pandemic situation affects the economy globally within their respective regions. Now with the rapid globalization, it is just not in their respective regions, but also cross-country economic impact.
With the future unpredictability of the unknown diseases wide spreading across international borders, we all have to be cautious of the unknown liability, especially in commercial contracts. It is quite obvious that every year or the other, we are evidencing one or the other viruses. Although every virus attack is not a pandemic, in a lifetime of a long-term contract, such events may happen. In the past 10 years since the 2019 outbreak, we have seen H1N1 swine flu from 2009-to 2010. Other notable epidemic viruses that badly affected certain regions are the SARS outbreak in China in 2002, the Ebola outbreak in West Africa in 2014, and Dengue fever in several Southeast Asian countries in 2019.
As stated above, these events are known unknown situations. That is to say, we know that the pandemic situation causes a bad impact on the economy for an unknown period and unknown liability. Needless to say, it is a bad hit to the Real Estate business as all of the construction work took a halt for almost 8 months. In most cases it is a no-win situation, also called a lose-lose situation. For example, a multinational corporation as a tenant may try to invoke ‘force majeure’ to excuse itself from paying rent for premises owned by a Real Estate corporation that is dependent on the rent for its survival would result in a huge hardship whereas a converse situation may equally affect tenant. In all such cases, there should be a valid and negotiable term that will aim for a win-win situation for both parties.
In our experience, in most of our client contracts, we have seen either missing this provision altogether or very lightly worded such as “circumstances beyond party’s reasonable control”.
We suggest, go and pick your legacy contracts and add or modify the existing Force Majeure clause, if not already, it can include: “…. epidemics, pandemics, infectious diseases, outbreaks, quarantine restrictions, travel restrictions due to the employee and/or public health concerns, lockdowns, other acts of God or nature, governmental acts or orders or restrictions”