Force Majeure provisions are an integral part of contract law that provides protection against unforeseen events that may disrupt the performance of contractual obligations, such as natural disasters, pandemics, and acts of war. I often minimized the importance of Force Majeure provisions, because of the small likelihood of the occurrence of a war, pandemic, or another catastrophic event. My position changed drastically in 2020, following two separate events that had massive impacts on my restaurants at the Mandalay Bay Hotel in Las Vegas, including, the devastating mass shooting in late 2017 and the COVID-19 pandemic. While fortunately, our landlord, responded in a very fair manner with rent deferrals and other accommodations, many landlords or other contractual parties are not so friendly. Below are some benefits of such Force Majeure clauses:
1. Help minimize the risk of contractual breaches, allowing both parties to be released from certain contractual obligations if an unexpected event occurs that makes it impossible or commercially impractical to fulfill their obligations. This protects both parties from the financial consequences of a contractual breach and helps to preserve the business relationship.
2. Allow contractual parties to continue their relationships in the face of unexpected events, by requiring them to work together to find a solution that is mutually acceptable.
3. Clarifying the obligations of both parties can help avoid costly and time-consuming disputes.
Whether you are entering into a lease, a supply contract, or otherwise, force majeure provisions are important and can play a critical role in protecting against liability, ensuring the continuation of business relationships, and providing clarity in the event of a catastrophic event.
The information contained in this article is strictly for educational purposes and is not intended to be legal or tax advice or to be relied upon by anyone without doing their own research, and consulting with legal and tax advisors.