The world is still reeling from the arrival of COVID-19 a few months ago. Businesses have to close or limit their processes and personnel to the bare minimum. People are struggling to find basic household supplies and even food. Essential workers are struggling to find the equipment they need. Additionally, corporations ask essential workers to continue to work while maintaining distance from others. And all non-essential personnel are being asked to stay home. As a small business owner in these circumstances, how are you supposed to honor your business contracts when you can’t leave your home? Read on below to find out some of your options.
Force Majeure Clause
Many commercial contracts include a clause known as Force Majeure or Act of God clause. This allows for a lapse in contract fulfillment in light of circumstances that are unforeseeable and out of the control of the parties involved. These circumstances must make the contract fulfillment impractical if not impossible, and potentially also illegal. If, for instance, you are not able to maintain safe social distancing of 6 feet from others in the completion of your contractual duties, this would violate the current order in place from the governor of Florida, so this would be something o review in your contract.
These contract clauses must specify what happens in the event that a party invokes the clause. Depending on the specific language of your contract, this clause may be used to determine that Covid-19 relieves both parties of their contractual obligations.
Material Adverse Effect Clause
Specific to merger contracts, this clause determines that a buyer can walk away from a contract if there has been significant material change from the time of contract signing to execution. This again must be due to circumstances that were unforeseeable and out of the control of the parties involved.
Other Clauses and Options
Depending on your particular contract, there may be other clauses that release you from fulfilling your contractual obligations. At least it relieves them for the interim. For instance, some clauses allow for a refund or rescheduling of services. That refund or reschedule takes the place of cancelling the entire contract.
Failing all else, it is imperative to speak to all parties involved. Communicate and see if you can come to a deal wherein the contract is placed on hold temporarily. At least until the government lifts COVID-19 stay at home orders. There are many out there in this understandably difficult time who are willing to extend leases and broker arrangements. Agreements that ease the financial burden that many are currently facing.
It is important to ensure that you fully understand the details of your contract and are able to invoke certain clauses as necessary. If you are unsure of the terms, or if you need assistance in properly executing a force majeure or other such contract clause, we are here to help. COVID-19 is a pandemic that has brought many businesses to a halt. Your contract is there to protect you and your business for such a time as this.