By Edward Woodall

Natural Disasters and Contract Obligations

After Hurricane Helene and Milton smashed into the Southeast and caused billions of dollars of property damage, you probably saw dozens of news stories about roads washed out, businesses flooded, and utilities cut off. Perhaps this caused you to wonder, “What would happen to my business and my contracts if I were in that situation?” It’s a good question and the subject of this blog post.

Force Majeure

The first thing that comes to many lawyers’ minds after a natural disaster is the force majeure (French for “superior force”) provision of the contract, sometimes casually referred to as the “Act of God” provision. This provision in the contract governs when and how the parties are released from their contractual obligations due to events beyond their control. The force majeure provision will likely be triggered by any major natural disaster, as well as other events that are (1) unforeseeable and (2) beyond the control of either party and (3) that impair or make impossible the performance of contractual obligations. You should carefully read your contract’s force majeure provision to determine whether it applies to your situation. Common questions that arise when dealing with force majeure provisions include:

• Does the provision apply? You’ll need to consider whether the natural disaster or other unforeseen event qualifies as a “force majeure” under your contract. The precise wording of the force majeure provision matters. A hurricane will usually trigger it, but what about a tropical storm or unusually heavy rainfall? What if natural disasters were foreseeable, like flooding in low-lying coastal areas? Contracts can define “force majeure” through a lengthy list of qualifying events, through a set of elements, or both. Since the COVID-19 pandemic, force majeure provisions have become much more detailed and require close reading.
• What hoops do you have to jump through? Sometimes, the occurrence of a force majeure event will be enough to trigger the provision. Other times, procedural steps must be taken, such as giving your counterparty notice of the event and providing regular updates.
• What effect does the provision have? Once you’ve determined that a force majeure event has taken place, you need to consider what effect it has on your contractual obligations. Sometimes, contractual obligations are entirely waived by the event. In other contracts, the force majeure provision merely excuses a delay in performance. Still, the contractual obligation must be fulfilled after some time has passed and/or conditions have improved. Additionally, many contracts state that the force majeure provision applies only to some of the contractual obligations. It’s common for the force majeure provision not to apply to the obligation to make payments or fulfill certain other contractual obligations

Other Contract Clauses

In addition to the force majeure provision, which is common in all types of contracts, your business’s contracts may contain specific provisions that apply to your situation. For example, commercial real estate leases often contain provisions about who must perform what repairs or what happens when utilities are interrupted – both common issues after a major storm. Additionally, contracts for the sale of goods or the provision of services typically include sections addressing delays in performance, which would apply even if the force majeure provision doesn’t. Finally, some contracts allow either party to terminate the agreement for any reason whatsoever – these provisions may provide relief after a natural disaster.

What To Do When Disaster Strikes

When a hurricane or other natural disaster interferes with your business operations, it’s essential to consider all your options. Venn Law Group’s experienced contract and litigation attorneys can help you review your contracts and the applicable laws and regulations, and make the best decision to get your business back on its feet. But, of course, an ounce of prevention is worth a pound of cure. Having the proper provisions in your agreements before disaster strikes can ensure that your contracts work with you, not against you, after the next hurricane. Contact us to learn how we can help you review and refine your contracts.

Edward B. Woodall is an attorney at Venn Law Group who works in corporate law and commercial real estate, including leasing, financing, taxation, business structures, and dispute resolution. He is passionate about helping business owners solve a variety of complex legal problems and has performed more than 100 hours of pro bono work. In addition to his law degree, he also has a background in history and Spanish.