How did Force Majeure Clauses Suddenly Become “Sexy?”

Dusty Boilerplate no Longer.

The Force Majeure (“FM”) clause has long been regarded as one of those boring old boilerplate clauses that rarely get much attention during contract negotiations.  I speak from personal experience!

The onset of COVID19 has caused a lot of construction projects to be delayed and office buildings to be emptied of workers, among other things.

The FM clauses in the associated contracts are now getting a lot of attention!

What is Force Majeure?

According to the Oxford English Dictionary, an FM is “Unforeseeable circumstances that prevent someone from fulfilling a contract.”

The FM might affect one or both of the parties to a contract.

FM Event is one that objectively prevents performance of a given contract.

What Should a Good FM Clause Contain?

Each contract that has an FM clause should include these types of provisions, properly tailored to the underlying business deal:

  • Definition of the events, such as a fire, government orders, or a pandemic, that constitute FM for this contract.
  • How to calculate the length of the allowable delay.
  • Whether the contract will be terminated after a certain length of delay.
  • Whether partial performance, e.g., a tenant paying base rent in a lease, is still required.
  • How the parties are to give notice to each other.

Recent Example of a New FM Clause Bursting onto the Scene.

I am part of the Real Estate business community in Idaho. The Idaho Realtors® is an organization that produces and regularly updates forms for use in (primarily residential) real estate transactions.

Just last month, Idaho Realtors was prompted by COVID19 to add not one but two new forms to its library.

  • Form RE19 COVID Addendum – to provide for an automatic stay of each party’s performance. It adds an FM clause to the Contract. It defines the specific events that equal an FM for purposes of that contract.
  • Form RE-19A – COVID19 Release of Liability as a Result of Exposure to Someone During a RE Transaction. It releases claims specifically related to COVID19.

Conclusion:

FM clauses are complicated by two factors: state law and the underlying business deal.  Please consult with an experienced business lawyer who is licensed in your state whenever you need an FM clause drafted or negotiated.

Thank you!

Michael Oswald

michael@msochartered.com

www.msochartered.com

Please note: the above post contains educational information. It is not intended as legal advice. Engage an attorney who is licensed in your state to get advice on dealing with any specific legal issue.

© 2020 Michael S. Oswald

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s