In the last two years, businesses and professionals in Maryland and Washington, D.C., have had to quickly pivot to avoid the negative economic impacts of completely unexpected events outside of their control. First, there were tariffs and trade restrictions, followed quickly by the Coronavirus global pandemic.
How can you give your contracts additional strength before the next uncertainty hits?
One recommendation is to more closely examine the often overlooked Force Majeure provision. Addressing the nuances in this so-called “standard clause” could prove crucial to your business if outside factors are likely to cause a material impact to your employees, project schedules, or create other supply chain and logistics nightmares.
Here is one example of a Force Majeure provision, pulled from a “forms” book that may not fully protect you in a time of need:
In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, equipment failure, or damage reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes.
If a dispute arose, this clause very likely would not protect your business or investment from issues not expressly covered by the very limited language. For example, in my judgment, it would not protect against delays caused by governmental trade wars or new tariffs being unexpectedly imposed, which are events that could be more fully covered by terms protecting against delay and interference caused by “changes in laws or regulations”; “acts or omissions by governmental and regulatory authorities”; or the “unavailability of supplies”.
Another equally important concern is that the parties to the above example did not provide any enforcement mechanism. For example: If you need to make a claim, to where should you send a notice? How quickly? How detailed must your explanation be? Does the other party have an obligation to object if it disagrees? What happens if there are multiple causes? These are just some of the questions that can be addressed or mitigated during contract negotiation, rather than after a dispute arises.
The Force Majeure clause is a term in almost every contract. Examples of contracts that this law firm regularly negotiates include: Commercial Real Estate Purchase and Sale Agreements; Commercial Leases; Occupancy Agreements and Licenses; Construction Contracts; and Professional Services Agreements; and other commercial transactions.
If you need representation in your commercial agreement negotiation, or in enforcing contracts that you have already entered, please call Peter E. Ciferri at (240) 778-2307, to schedule a consultation.