Force Majeure Clause: Everything You Need to Know

A “force majeure” clause in a contract has increasing relevance in a world that seems more unpredictable than ever. Whether disruption of services and goods occurs as a result of terrorist attacks, such as those on the World Trade Center on 9/11, or are the result of increasingly severe weather events, such as the hurricanes that wreaked havoc on Houston, New Orleans and Puerto Rico last year, companies must establish contingencies to deal with these issues when negotiating contracts. That is where a force majeure clause comes in.

Force majeure clauses are provisions in contracts that can provide protection from anything from flight and accommodation cancellation fees to the cost of lost goods and services. They release the obligations of parties, either temporarily or completely, due to circumstances beyond their control.

Without such a clause, a party to a contract may be subject to common law doctrines such as “impracticability” or “frustration of purpose,” and find themselves liable for potentially crippling costs.

Key Elements of a Force Majeure Clause

It is important for certain industries, such as meeting planners, hospitality providers, airlines and manufacturers, as well as business that conduct business internationally, to always include force majeure clauses in every agreement. They offer these industries the ability to adapt quickly to the impact of unexpected events without a loss of revenues. There are several important issues that every force majeure clause should address to some degree. These include:

Beware Broad Force Majeure Clauses

Sometimes a party to a contract may seek to include events for which they should be prepared to avoid or have prior knowledge to limit the extent of damages and shift responsibility for these events onto the other party. This is a good reason to carefully study all force majeure language in any agreement.

For instance, a company may seek to include a force majeure clause in the event of labor unrest. However, it might be determined that this risk should not be passed on to the other party if the company has had contentious relationships with its labor force in the past and their ability to fulfill contracts has been an historical occurrence.

It may only take one catastrophic event to destroy all the hard work you’ve put in to make your business a success. Taking the precaution of including a force majeure clause in every contract you negotiation is a great bit of insurance against unforeseen circumstances.

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