Will COVID-19 Excuse Contractual Nonperformance?
The first step in answering this question is to look at your contract and determine if it contains a force majeure provision. A force majeure provision will excuse a party from nonperformance of a contractual obligation when the nonperformance is caused by unforeseen circumstances. Whether a party will be excused due to the recent COVID-19 events depends upon the language used in the provision.
A typical force majeure provision usually includes events such as fires, floods, hurricanes, tornados or other acts of God. However, some provisions may specifically mention an epidemic, pandemic, or national health emergency while others will simply include a catch-all provision excusing performance upon the occurrence of an event “beyond the reasonable control of the Party whose performance is affected.” If the provision references the former, there is a high likelihood performance will be excused. If the provision simply includes a catch-all provision, the likelihood of excusal is harder to determine.
Even if the contract does not contain a force majeure provision, parties who fail to perform a contractual obligation may try to assert other excuse defenses such as impossibility. Simply stated, a party may claim performance was rendered impossible due to the COVID-19 pandemic. A party can legally make this assertion for most contracts including, leases, real estate contracts, and sale of goods contracts. Due to the unprecedented nature of this situation, the likelihood of success of these types of claims is unclear and outcomes will likely vary on a case-by case basis.
PRACTICE TIP: Most commercial contracts, including commercial leases, contain a force majeure provision in one form or another. If you are worried about a party’s possible nonperformance, look at your contract and determine if it contains language that may excuse a tenant or other party from performance. We can help you with that.
If in doubt, please contact Ron Holmes at 469.916.7700 ext. 105 or send him an email via our Contact form.
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About Ron Holmes
His real estate law practice is as broad as it is deep. Mr. Holmes has served as lead counsel on real transactions all across the United States (more than twenty States), representing public and private companies, both domestic and international, in all manner of real estate transactions, including large scale multi-use land developments and high rise residential condominiums, to acquisitions and sales of operating property portfolios, office, industrial and retail leasing and virtually every other form of real estate development, construction, financing, investing and leasing.Learn more about Ron…