March 19th, 2020
The Impact of Planning and Forgotten Contract Clauses – Understanding “Force Majeure” aka “the Act of God” clauses in the new COVID-19 World
Author: Matthew Pavlides, Beth Irving
COVID-19 has caused many to review their contracts and look at what to do in a the new COVID-19 world.
“Force majeure” aka “Act of God” clauses are provisions that explain to parties what happens when acts beyond the control of the parties occur. These clauses can be written in countless ways. Some clauses list just a few force majeure events – such as labor strikes, acts of God, war, and floods and severe weather. Still, others are drafted with a general catch-all phrase, such as “any cause beyond a party’s reasonable control.” Based upon the language of the clause, the consequences can be quite dramatic!
Take for example the collective bargaining agreement between the NBA and the NBA Players Association. Recently, these parties dusted off their contract as to what to do when COVID-19 stopped the season. While the NBA Players may have wished that they had negotiated the clause more wisely, the collective bargaining agreement reads that in the event of a “force majeure” like COVID-19 the players would not get paid. The clause is now called the “doomsday clause” and it could be a harsh reality for the NBA Players.
Using a different example, in many commercial leases, some smart landlords have for years expressly carved-out from force majeure clauses the obligation to pay rent, surrender the premises and pay holdover rent for not vacating the space. Simply put, landlords had cleverly shifted the risk to the tenant that, no matter what happens, the obligation to pay rent as well as the obligation to surrender and vacate a leased space at the expiration of the term continued no matter how dire the situation.
Looking at just these two limited examples, the importance of sound legal advice clearly favored one party versus the other. Equally important, if you run into a problem having the right lawyer look at your contract can also make a difference.
Stein Sperling has lawyers available who can provide sound legal advice on the front end and the back end for all types of contracts, including but not limited to, commercial, residential, lease, purchase, construction and other contracts as well.
More on issues affecting businesses and individuals in our COVID-19 Resource Center.