Force Majeure Contract Clause Example: Protecting Your Business from Uncontrollable Events
A force majeure clause is a contractual provision that excuses a party`s performance obligations when unforeseeable events beyond their control prevent them from fulfilling their contractual duties. In other words, it`s a way to protect your business from events that are out of your hands.
In the wake of COVID-19, many businesses have realized the importance of a well-drafted force majeure clause. Whether it`s a pandemic, natural disaster, war, or any other unforeseeable event, a force majeure clause can help you manage risks and protect your business from potential losses.
Let`s take a closer look at a force majeure contract clause example:
“Force Majeure Event. Neither party shall be deemed in breach of this Agreement to the extent that performance of its obligations or attempts to cure any breach are delayed or prevented by reason of any act of God, war, terrorism, riot, fire, explosion, flood, pandemic, strike, labor dispute, civil commotion or any other cause beyond the reasonable control of the affected party.”
This clause defines a force majeure event as any occurrence beyond the reasonable control of either party. It lists specific events, such as a pandemic or fire, but also includes a catch-all phrase at the end that covers any other cause beyond both parties` control.
It`s essential to understand that a force majeure clause will only excuse non-performance if the event listed or the cause of the non-performance is beyond the control of both parties. In other words, the event must be unforeseeable, and there must be no other way for either party to perform their obligations.
Here are some best practices for drafting or reviewing a force majeure clause:
1. Be specific: List specific events or conditions that trigger the clause. This will help avoid disputes over whether a particular event falls within the scope of the clause.
2. Include a catch-all phrase: As we saw in the example above, including a catch-all phrase that covers any other cause beyond the parties` control can provide additional protection.
3. Define the consequences: Clearly state what happens when the force majeure clause is triggered, such as suspending performance or terminating the contract.
4. Mitigation efforts: The clause should also make it clear what efforts each party must make to mitigate the effects of the force majeure event.
5. Negotiate the clause: The force majeure clause should be negotiated and agreed upon by both parties before signing the contract. Each party must be clear about their responsibilities and what events they are protected against.
In conclusion, a force majeure clause is a crucial provision that can protect your business from unforeseeable events. By including a well-drafted force majeure clause in your contract, you can mitigate risks and avoid potential losses that may arise from circumstances beyond your control.