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Small Business Tips

What are Force Majeure Contract Clauses?

Stephen Fishman
Tax expert and contributor MileIQ
restaurant owner working in booth

In March, the Illinois governor suspended dining in restaurants due to the coronavirus (COVID-19) pandemic. In response, an Italian restaurant in Chicago stopped paying its rent. Subsequently, the landlord sued, but the court held the restaurant only had to pay 25% of the rent due.

Why? The restaurant’s lease had a force majeure clause.

What is a force majeure clause?

“Force majeure” is French for superior force. It’s just a fancy (and confusing) name for a standard clause (provision) often included in contracts, such as commercial leases.

Force majeure clauses are also known as “Act of God” clauses. They can excuse people or businesses who enter into contracts from doing what they promised—such as paying rent.  

But this can occur only if there is a supervening event over which a party to a contract has no control. For example, a force majeure clause could excuse you from performing if there is a hurricane, war, or fire.  

What events excuse performance?

The force majeure event must make your performance inadvisable, commercially impracticable (very difficult), illegal or impossible.  

In the Italian restaurant case, the coronavirus pandemic affected paying the full lease payments the restaurant owed impracticable because most of its business got eliminated by the state’s stay-at-home order.

Similarly, you might get excused from fulfilling a contract if your office shuts down due to a government shelter-in-place order.

However, you’re not excused from performing if fully capable, but rather not because it’s inconvenient or more expensive than you originally bargained for.

Every force majeure clause is different

A standard force majeure clause doesn’t exist. In reality, they differ from contract to contract.

Typically, such a clause lists all the events that excuse or delay performance. Common examples include: “acts of God,” war, terrorist attacks, riots or civil insurrection, earthquakes, hurricanes, tornados, floods, famine and fire.

A force majeure clause may also include disease, contagion, pandemics or epidemics, but not always.  

There may also be a catchall provision excusing performance for by any event beyond the reasonable control of the affected party.  

Here’s an example of a force majeure clause:  

“Neither Party shall be liable for any failure or delay in performance of its obligations under this Agreement arising out of circumstances beyond its reasonable control, including, without limitation: acts of God; earthquakes; fires; floods; wars; civil or military disturbances; acts of terrorism; sabotage; strikes; epidemics; riots; power failures; computer failure; accidents; labor disputes; or governmental actions.”

Force majeure clauses are strictly construed

If your contract has a force majeure clause, read it carefully.

As a rule, force majeure clauses are strictly construed by the courts. In layman’s terms, it means they follow what the clause says without any additions.

Thus, if the clause does not specify a particular event, it may not excuse nonperformance.

If a force majeure clause specifically lists pandemics, epidemics, contagion or diseases, the coronavirus pandemic is likely covered by the clause.

But, a clause that doesn’t mention pandemics or contagion might not apply to the coronavirus.  

A court could conclude that the pandemic falls under an “Act of God” or catchall provision. If your business is subject to a government shutdown order, it could constitute an act of government. However, it’s not entirely clear.  

If you’re not sure whether a force majeure clause in a contract you’ve signed excuses your performance seek legal help.

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What promises get excused?

Under some force majeure clauses, the contract terminates when a force majeure event occurs. Essentially, it means you won’t get paid (or have to pay the other party).

However, in other cases, your performance may only get delayed or reduced. This means you have to perform when you can or pay what you can. The Chicago Italian restaurant is a good example. It had to pay 25% of the total rent due.

The importance of notice

If your contract has a force majeure clause, and you intend to use it to delay or stop performing, be sure to let your client, customer, landlord, other person or business know about it. If you don’t, you may waive your right to rely on a force majeure clause.

Read your contract to see if it dictates how you should give notice, for example, by email, postal mail or certified mail. Be sure to do whatever your contract requires and keep copies of the notice.  

Your duty to mitigate damages

To rely on a force majeure clause, you must show that you took all reasonable steps to avoid or mitigate (reduce) the damage caused by the force majeure event.  

For example, the Chicago Italian restaurant switched to take-out orders after the closure of its dining room. This change mitigated the damage to its business caused by the coronavirus pandemic.  

What if your contract doesn’t have a force majeure clause?

Not all commercial contracts have a force majeure clause. It’s not required.  

If you signed a contract without a force majeure clause, a court wouldn’t pretend there is one if you get sued for breach of contract.

However, all is not necessarily lost. There could be other legal grounds that enable you to avoid liability for delaying your performance, or not performing at all.  

One ground is the “doctrine of frustration” or impossibility. This term is a legal rule that says a contract automatically comes to an end if an event occurs after formation that:  

  • Is not the fault of either party
  • Was not foreseen by them, and
  • Makes it physically or commercially impossible to fulfill the contract

It’s generally harder to avoid liability for breach of contract under the doctrine of frustration than if your agreement has a well-written force majeure clause. However, depending on the circumstances, the coronavirus pandemic could fall within this legal doctrine. But it’s wise to seek legal advice before relying on it.  

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