By: Kevin M. Carrara, Rathje Woodward LLC, www.rathjewoodward.com
CONTRACTS AND LEASES IN THE WAKE OF COVID-19. As you know we are all in unprecedented times. Now is the time to consider what may happen to your commercial contracts and your commercial leases; no matter what side of the contract or lease you are on.
Generally speaking, a force majeure provision sets forth the unforeseeable circumstances that will excuse a party from performing their side of a contract. The first question we must answer is does COVID-19 prevent performance?
Engaging legal counsel in this initial stage may be crucial to acting efficiently and decisively to make the best possible arguments that performance is excused, or it is not excused.
Five-Step Framework:
- Review the contract or lease closely and determine whether the contract or lease has a force majeure provision. If the contract or lease does have a force majeure clause, we need to analyze whether the COVID-19 pandemic might constitute a force majeure event under the terms of the specific provision and then what effect this has on contractual obligations. This may require some amount of interpretation and potentially drawing similarities to previous cases.
- If no force majeure/impossibility provision exists in the operative contract or lease, determine whether the state providing the governing law provides for force majeure/impossibility by statute or common law impossibility and/or frustration of purpose. However, the availability and contours of these common law arguments will vary based on jurisdiction.
- Analyze and determine if the specific facts support a triggering event under the contract or lease;
- Be cognizant of the notice and timing requirements of the operative contractual provision or statute (this is a critical step). Determine what notice is required under the force majeure provision. Some force majeure clauses will require the party suffering a force majeure event to notify other parties of its inability to perform within a certain time frame.
- Obtain and retain as much information as possible about any potential force majeure claim, documenting the timing, the number of impacted people/parts/facilities, and when the event is expected to conclude. If complete information is not available, the party invoking force majeure should supplement its notice as additional information becomes available
CONCLUSION. A proper assessment of the impact of the coronavirus outbreak requires a fact-specific analysis of a company’s business and contractual relationships. Concerned company executives should review with their in-house and outside counsel the rights and obligations provided in the company’s commercial contracts, leases and other relevant agreements.