Force Majeure Provisions in the Age of COVID-19
By Patrick Compton, partner at Ballard Spahr
Whether you are dealing with a real estate purchase and sale agreement, a construction contract, or a commercial lease, chances are your legal documents contain some form of “force majeure” provision. Translated from the French, meaning “superior force,” these provisions relieve or modify contractual obligations when circumstances beyond the control of the parties make contract performance impossible, commercially impracticable, or illegal. These provisions are historically rooted in, and expand upon, traditional English common law doctrines like frustration of purpose, impossibility, and commercial impracticability. Force majeure clauses, like the common law doctrines from which they derive, are seldom used in ordinary times.
But these are not ordinary times. With remarkable swiftness, the coronavirus pandemic has taken Colorado’s commercial real estate industry and thrown it into upheaval. Sectors that had recently been vibrant (for example, hospitality) and sectors that had not (for example, retail) came to a screeching halt, shuttering virtually overnight in the wake of local and statewide shelter-in-place orders.
Now, as a result, force majeure clauses are seeing new life, with parties across the industry offering those clauses as a basis to excuse contract performance. As parties grapple with the impacts of contract breaches throughout the industry, a tidal wave of force majeure litigation in the coming months appears likely, if not inevitable.
Given that, parties should best position themselves now. Before relying on, or defending against the invocation of a force majeure provision, there are certain things one should do.
Closely reviewing your contract’s language is critical: Assuming your contract contains force majeure language, the obvious starting point in developing a strategy is undertaking a careful and thorough review of that language. The first step in analyzing what options exist, and what the best course of action might be, is to look at the nature of the coronavirus-based disruption the contracting parties are facing, and consider it against the express language of the contract’s force majeure language.
Be sure to consider your contract’s “choice of law” provision: Often overlooked “choice of law” provisions – contract clauses that tell you what state’s substantive case law is used to interpret the contract – are also important. Courts in different states have interpreted and applied force majeure provisions in different ways. The state law governing your contract – which might or might not be the state where the contract is to be performed – will undoubtedly affect the applicability of the contract’s force majeure provision.
Don’t forget common law doctrines: Even if your contract does not contain a force majeure provision, there may still be challenges to the contract’s enforceability. Traditional common law doctrines – like frustration of purpose, impossibility, and commercial impracticability – will likely be invoked by nonperforming parties, particularly considering the sheer breadth of government-mandated shutdowns that have followed in the wake of the pandemic. Consulting with qualified legal counsel regarding these doctrines, and how they might impact your contracts, is advisable.
Patrick Compton is a trial attorney with a practice focused on real estate and construction litigation matters, which he handles across the country. His combination of industry and trial experience gives Patrick a strong appreciation of the needs of his clients, as well as an understanding of how best to achieve their goals. He was also one of the first litigators in the nation to become a LEED® Accredited Professional. Patrick is based in the Denver office of Ballard Spahr.