In response to the current COVID-19 epidemic, many REALTOR®associations and firms are cancelling previously planned events in order to promote social distancing and to avoid spreading the contagion.
Associations and companies may have entered into contracts related to these events, and now they need to cancel these contracts. Can a party cancel a contract without liability in the event of a viral epidemic? The answer to this question lies in the contract itself – and specifically in the section of the contract known as “Force Majeure.”
What is “Force Majeure”?
Force majeure contract provisions relieve one or both parties from fulfilling their contractual obligations when circumstances outside their control arise. Examples often include natural disasters, technical failures, labor and government related events such as strikes and shutdowns, as well as wars and pandemics.
A force majeure provision will usually state a list of supervening events which, if one such event occurs, will allow a party to cancel the contract without liability. Companies and associations will want to check relevant contracts to see if “disease” or “epidemic” are listed as supervening events.
Even if those specific words are not included, the COVID-19 pandemic may fall within broader terms such as “act of God” or “national or regional emergency.” The force majeure provision might also include catch-all language to cover non-specified supervening events such as “other unforeseeable circumstances of a comparable nature beyond the parties’ control.”
Additionally, many force majeure provisions include a notice requirement stating that the impacted party must give notice to the other party within a certain number of days of the force majeure event in order to cancel the contract. Companies and associations will want to review relevant contracts so that they know how much time they will have to act if they wish to cancel a contract.
In some cases, the force majeure provision will require you to provide notice very quickly (for example, within 5 days of the force majeure event) – so don’t delay your review!