Covid Verbiage for Contracts
Not so long ago, there was a danger that the force majeure clause would be dismissed as a list of potential disasters, each of which is unlikely, embedded in the boilerplate at the back of a commercial contract. Then came 2020, and force majeure came to the fore as COVID-19 and government shutdowns wreaked havoc on leases and commercial contracts. Disruptions have led to litigation and a growing awareness that we cannot ignore the potential applicability of force majeure to our trade agreements. A positive aspect on the horizon is that previous case law provides lessons of cautionary tale about what we need to consider when drafting and interpreting force majeure commercial contracts. Under English law, the occurrence of a force majeure event – traditionally an earthquake, war or storm – generally does not terminate a real estate purchase agreement unless the contract expressly provides for it. Force majeure clauses are generally not to be seen in residential purchase agreements, except in the case of the sale of new construction properties, where they usually benefit a developer in the event of a delay in the construction process (due to certain events). The doctrine of impossibility is narrow in scope and is rarely applied because it undermines the essence of a contract as a legally enforceable promise. 6Open this footnote Close this footnote 6 Kel Kim Corp.c. Cent.
Mkts., Inc., 519 N.E.2d 295, 296 (N.Y. 1987) (with the conclusion that the doctrine of impossibility „has been applied narrowly, in part because of the judicial recognition that the purpose of contract law is to spread the risks that might affect performance and that performance should be excused only in extreme circumstances“). . Open this footnote Close If the courts regularly exempted the parties from their contracts if it turned out that enforcement was more difficult than expected, the parties would lose confidence that the contracts are truly legally enforceable. 7Open this footnote Close this footnote 7 See Mineral Park Land, 156 pp. 460 („We do not want to suggest that the defendants could apologize by proving the existence of conditions that would make the performance of their obligation more costly than they had intended or that would result in a loss for them“). Open this footnote Close For this reason, „a simple change in difficulty or expenses due to causes such as rising wages, commodity prices or construction costs, provided they do not far exceed the normal range, is not impracticable, as it is this type of risk that a fixed-price contract is supposed to cover.“ 8 Open this footnote Close footnote 8 Restitution (second) of contracts § 261 cmt. d (Am. Droit Inst.
1981). . Open this footnote Close „In addition, a party is expected to make reasonable efforts to overcome barriers to performance, and performance is not achievable only if it is achievable despite those efforts.“ 9Open this footnote Close this footnote 9 Id. (citation omitted). . Open this footnote Close Legally, most business owners are wondering how their contracts can come into play with cancellations and/or debt restructuring situations related to the coronavirus. CIL clauses are common in construction contracts. They may overlap with an FM clause listing government restrictions as an FM event, and the contractual consequences may be similar. However, while fm generally allows for the suspension of obligations to meet a schedule, CIL generally allows compensation for the need to comply with new unpredictable standards.
The central elements of the formulation of these clauses are as follows: At the beginning of the lockdown, those who had already exchanged contracts for the purchase or sale of residential property wondered if their contracts could be thwarted by the crisis. However, it is generally accepted that a real estate purchase contract is not thwarted by an epidemic such as the coronavirus. Those entering into new construction contracts should include custom language that addresses the parties` respective rights and obligations in relation to COVID-19. Many articles and webinars have focused on how traditional contract clauses in existing contracts can address COVID-19 issues. The adjustment is not always clear. Some conjecture is at stake and creativity is needed as square pens are drawn into round holes. While it is necessary to conduct this retrospective analysis to assess how COVID-19 issues will affect existing contracts, there is no need to spread uncertainty in new contracts. In fact, such uncertainty can cause parties to avoid new contracts or include significant contingencies, none of which support an industry trying to recover from the pandemic. This article discusses custom COVID-19 language for new construction contracts.
The principles discussed can be applied to any construction contract. This article is based on two construction contracts for which I successfully designed and negotiated a custom COVID-19 language. One is a private project and the other is a public project. Some of the views expressed during these negotiations are incorporated into the discussion in order to convey the views of both parties. For many works contracts, one of the criteria for an excusable delay is that it must be unpredictable. Contractors may be concerned that with the new contracts, any COVID-19-related delays will be considered predictable because the parties were aware of the COVID-19 pandemic when the contract was signed. This is the kind of uncertainty that can arise when the model clauses are not clarified. A fair approach is to focus on the specific COVID-19 issue that caused the delay, rather than the pandemic as a whole.
In this context, clarifying language should be added to the contract stating that, in relation to a COVID-19 condition, only an unknown COVID-19 condition is considered unpredictable. It creates the right balance. If the Contractor was not aware of the COVID-19 condition when signing the contract or amending the GMP and should not reasonably have known about it, this will be considered unforeseeable and something for which the Contractor may request an extension of time. The owner is also protected because the contractor will not be able to request an extension of time based on a COVID-19 condition that he knew or should have known when signing the contract or amending the GMP. The housing market reopened on May 13, 2020 and sales and completions can now resume as long as they comply with state guidelines. These guidelines promote continued flexibility in home moves and suggest that real estate lawyers should continue to include COVID-19 in all purchase agreements. Some contracts provide for a right of termination after a certain period of time. This can be advantageous in situations where the FM event continues to affect the performance of the contract indefinitely. However, the parties should formulate these termination rights carefully.
For example, make sure that a reasonable period of time is set before the termination rights crystallize. .
