Economic uncertainty can affect nearly every type of contract, including business contracts and residential and commercial rental agreements. Whether the business faces supply chain issues, staffing problems, or is forced to close due to local laws, they may find it difficult to meet business agreements due to issues beyond their control. The same can be said for individuals or families trying to pay bills.
Force majeure clause
Most contracts, including ones involving real estate, contain a force majeure or “act of God” provision. The purpose of this clause is to excuse one of the parties from the obligation outlined in the agreement if something occurs that cannot be reasonably anticipated. Examples include:
- Acts of war
- Civil unrest
- Natural disasters
- Government shutdowns
- Health crises
These and many other events can lead to non-performance and a breach of the agreement. Nevertheless, parties still must meet their obligations, unless force majeure is in effect.
Invoking the force majeure clause
For a force majeure claim to be valid, the party must show good faith in their attempt to meet the agreement’s provisions. It may be impossible to provide goods or services, for example, or it may be so expensive that it is unreasonable. If one party disputes the force majeure clause and the two sides cannot agree on a resolution, the courts may end up deciding the matter.
In light of recent events, businesses and individuals should review their contracts to determine if their circumstances can justify invoking a force majeure clause. Parties also would be wise to consider acts of God when drafting new contracts.