This Week in Real Estate: Force Majeure Clauses
If the COVID-19 pandemic taught us anything, it’s that Force Majeure clauses are, in fact, extremely important. A Force Majeure Clause is a contract provision present in most commercial contracts that excuses a party’s performance of its obligations under the contract when certain circumstances arise beyond the party’s control making performance inadvisable, commercially impracticable, illegal, or impossible. A typical list of Force Majeure events might include war, riots, terrorism (after the events of 9/11), fire, flood, hurricane, typhoon, earthquake, lightning, explosion, strikes, lockouts, slowdowns, prolonged shortage of energy supplies, and acts of state or governmental action prohibiting or impeding any party from performing its respective obligations under the contract.
In the absence of a Force Majeure clause, parties to a contract are left to the mercy of the narrow common law contract doctrines of “impracticability” and “frustration of purpose,” which rarely result in excuse of performance.
What specific circumstances apply, however? These are typically enumerated in the particular contract provision. Did the recent COVID-19 pandemic excuse performance of the contract? Well that of course depends – was a pandemic included as a Force Majeure event? If not, the answer is probably no. Courts tend to interpret Force Majeure clauses narrowly; that is, only the events listed and events similar to those listed will be covered.
As we have learned, Force Majeure Clauses are not just boilerplate and need to be analyzed and negotiated properly. A carefully negotiated Force Majeure clause is an important tool for reducing the risk of liability associated with non-performance of a contract provision due to a disaster or forces beyond the performing party’s control.
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ABOUT JAMES LANDON
Jim Landon has practiced real estate law since 2002 and has been involved in real estate investment and construction for most of his life. Jim’s practice focuses on real estate transactions and land use.
Jim represents individuals and privately and publicly held companies in the purchase, sale, leasing, financing, and development of real property. He also represents title insurance companies on commercial purchases and refinancing transactions, as well as providing third-party legal opinions regarding Delaware law related to Delaware entities.
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