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As a business owner, you must protect your company if you cannot meet your contractual obligations due to events outside your control. A force majeure clause can help your business prepare for the unexpected. After all, a written agreement cannot predict every possible event that may occur between the contract’s signature and performance. This article will explore the three main benefits of including a force majeure clause in your commercial contracts to protect your business interests.
What is a Force Majeure Clause?
A force majeure clause protects your company if circumstances beyond your reasonable control render it impossible to carry out the contractual agreement. Such clauses are intentionally narrow and only used in exceptional circumstances.
Let us explore three main benefits of a force majeure clause.
1. Avoiding Unpredictable Events
It allows your business to avoid performing a contract in an extraordinary event that you could not predict at the time of signature. A common example is a natural disaster because this is an unforeseen event entirely outside the parties control. Additionally, neither party can resolve the situation. Therefore, whilst our law aims to protect business deals in written contracts, it does not wish to enforce agreements that may unnecessarily risk someone’s life.
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2. Avoiding Impossible Situations
Suppose your business arranged to rent out a particular type of luxury car, but the vehicle caught fire two days before the collection date. In this case, a force majeure clause will potentially allow non-performance without breaching the contract.
On the other hand, if the other party simply wanted any brand of luxury vehicle and your business had many others available, you cannot rely on the clause. This is because your business can reasonably remedy the situation.
3. Avoiding Illegality
Occasionally, an unexpected event may place legal obligations or restrictions on your business. Thus, performing the contract would be illegal. An obvious example is the COVID-19 pandemic, which placed venue restrictions on many businesses. For example, if your business hired out premises for a wedding, continuing the contract would breach COVID-19 regulations. However, a force majeure clause will allow the parties to safely cancel the contract. Furthermore, the clause is wide enough to cover unexpected worldwide health pandemics but narrow enough not to give the client an easy route if they simply change their mind about the venue.
Example
Let us consider two examples below. Both concern an outdoor event booked by your business for a Saturday afternoon:
- a small storm is due that will last for around 30 minutes on Saturday afternoon. There is no forecast for lightning and no local government action instructing citizens to avoid being outside; and
- an extreme weather event is forecast to last all day on the relevant Saturday. Government restrictions instruct citizens to stay indoors because of the risk to life.
Ignoring the warnings in the second example could have fatal consequences, so a force majeure clause would likely apply. However, the first example, whilst unfortunate, is unlikely to lead to the force majeure provision becoming effective.
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Key Takeaways
A force majeure clause protects your business against specific events outside the control of the contracting parties. They only operate in very unusual circumstances where holding one of the companies to their contractual obligations may have harsh consequences. Therefore, they only tend to apply to rare events outside one party’s control. Force Majeure clauses are difficult to enforce. Therefore, obtaining legal advice is worthwhile before attempting to use one to start legal action.
If you need help with the use of force majeure clauses, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
The affected party would have to consider claiming that the contract was ‘frustrated’. However, this is a more complex, risky approach.
Yes. Because force majeure provisions are not prone to regular use, they tend to result in court cases more often than other less controversial clauses.
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