Force majeure is a legal term that many are familiar with, but few understand. In law, force majeure is often claimed as an excuse for breaching a contract following severe and unexpected events, such as a devastating hurricane. Due to the impacts of COVID-19, many businesses and investors need to understand their rights and remedies relating to breaches of contracts and leases. The below sections address force majeure, as well as commercial impracticability and frustration of purpose – two common law doctrines of similar effect.
Force majeure is a defense to breach of contract that allows a party to stop performing a contract without penalty so long as that non-performance is due to unforeseen extreme events, such as weather-related emergencies (e.g., earthquake, hurricane, tornado), fires, government action, strikes, wars, or other similar events. Force majeure is a contractual remedy rather than a remedy under common law. As a result, force majeure can only be invoked if the parties have contractually agreed to allow either party to declare force majeure.
Many contracts contain force majeure clauses but limit the applicability. Only the landlord having the right to invoke force majeure is common in commercial leases. Even where the tenant may have the right, the obligation to pay rent is often carved out of the force majeure applicability. Thus, whether you can claim force majeure is a question of your specific contractual agreement. If you are unsure of the applicability of force majeure to your commercial relationship, or the full interpretation of a force majeure clause in a contract, please contact our offices today to schedule a consultation.
Two common law alternatives to force majeure are commercial impracticability and frustration of purpose. As common law doctrines, these defenses are implied in all contracts where the doctrines are recognized under state law. The applicability and specifics of these doctrines will vary from state to state.
The commercial impracticability doctrine excuses breach of contract where performing the contract is made impracticable due to events that are not the fault of the non-performing party, and the contract was agreed to with the basic assumption that the event wouldn’t occur.
Frustration of Purpose
Frustration of purpose is similar to commercial impracticability, but the non-performing party must show that due to a change in circumstances, the performing party’s performance is worthless. In effect, when the purpose of the contract can no longer be fulfilled, a party may be able to claim frustration of purpose as a defense to breaching that contract.
Business Contract and Lease Lawyers in Rhode Island, Massachusetts, and Connecticut
At PALUMBO LAW, we have represented thousands of businesses and real estate investors in a contract and lease negotiations and disputes. Our attorneys work tirelessly to ensure that your interests are protected. If you have questions relating to a business contract or lease in Rhode Island, Massachusetts, or Connecticut, please contact our office to set up a consultation or complete the contact form.