Businesses use contracts to govern deals between them. These can include everything from collaboration projects to purchase agreements. Contracts are designed to create certainty and lay out the expectations, rights, obligations and timelines.
One clause that’s critical in these is the force majeure clause. This can provide protection for the business if something unexpected and uncontrollable happens that prevents them from being able to keep up with their side of the contract.
What can be covered by a force majeure clause?
In contracts, a force majeure clause can excuse one or both parties from fulfilling their obligations when extraordinary events occur. These can include events, such as natural disasters or government shutdowns. The primary key is that the situation that triggers the force majeure clause can’t be anything that could be fixed or worked around by the party that’s dealing with the issue.
The way that a force majeure clause is worded has a primary impact on how it’s handled. The more comprehensive this clause is, the more protection it provides. Some clauses will specifically list covered events, but others use broader language. It’s always best to be as direct as possible because courts will typically interpret the clause in a narrow manner.
In most cases, events like price increases or economic downturns won’t fall under the scope of a force majeure clause because these aren’t impossible to work through. These situations would require the party to find a way to keep up their side of the contract.
The force majeure is only one part of a comprehensive contract. It’s critical to ensure that any contract your business uses has plans for the unexpected. Working with someone who’s familiar with your business and contracts may be beneficial if disputes arise.