The COVID–19 virus pandemic caused governments throughout the world to take steps to decrease the spread of the disease. These steps directly impact contractual relationships across many business sectors. Now, more than ever, it is prudent to consider existing contractual arrangements with landlords, utilities, landlords, government agencies and suppliers. Some of these contracts may either need to be paused or terminated under force majeure clauses. Other contracts may be capable of frustration or rescission.
Speak with one of our commercial lawyers in Adelaide to discuss how Covid-19 affects your commercial lease, residential lease, contracts and more. Continue reading below to learn how our lawyers can assist you during this difficult period or book a free no-obligation thirty (30) minute consultation, in person (subject to lock-down restrictions), over the phone or by video conference.
Termination – get me out of this contract!
Schedule a free 30-minute virtual consultation to get answers to the following questions:
- Can I terminate my contract unilaterally or do I require the counterparty’s consent?
- Are there any government programs designed to assist my current industry?
- Do my contracts differentiate between termination for default and no-fault termination?
- Am I already in breach?
- What are the penalties for terminating a contract?
- How much notice do I need to provide?
- What steps do I need to follow?
In very limited circumstances, you may be able to unilaterally terminate, unless you have obligations to fulfil before consent to termination is granted by the counterparty. This may occur in the case of a loan agreement that cannot be terminated until the loan is repaid. Another example is where a lease may be terminated by providing 6 months notice.
Even if you lack an express right to terminate, there may be circumstances that threaten the viability of your business. This may provide an opportunity to renegotiate. If you believe your business is unable to meet debts as they fall due, then our lawyers can liaise with your landlord or bank.
This may yield a compromise that will enable you to keep trading. Additionally, if you are technically insolvent, we may assist you to renegotiate the terms of any agreements with banks and landlords to help you trade through a downturn instead of dealing with a liquidator. In our experience, banks and landlords are generally receptive to this because it means they will not be left receiving pennies in the dollar.
Termination for breach of contract
Sometimes, contracts may be discharged because of a breach of the contract. The discharge is caused by an act of termination upon the non-breaching party. However, whether that party is entitled to terminate a contract depends on the nature of the breach. Therefore, care needs to be taken to ensure a contract is only terminated when it is justified.
Your contract may provide for a notice period. This needs to be followed in order to terminate and may require other steps to be taken for the notice to be effective. We can assist you by reviewing agreements for such requirements, including but not limited to whether:
- The notice must be in writing;
- The notice must be in an approved form;
- The notice signed by the relevant contracting entity;
- The notice identifies the subject matter (such as leased premises).
We can also assist you by reviewing your contract to determine whether you are subject to or may take advantage of agreed damages or liquidated damages clauses. We can also assist you by determining whether these clauses are enforceable. These types of clauses may only be enforced if they provide a fixed sum which is a genuine pre-estimate of loss or damage that would be suffered by the non-breaching party.
Are you eligible for Government programs?
There are government programs designed to support business through the downturn associated with the COVID–19 global pandemic. These include wage subsidies to assist employers to keep employees in work and methods for commercial tenants to reduce or defer rents in order to trade through the pandemic.
Most people and business enter a contract with the intention of performing their obligations. However, sometimes events occur beyond their control that makes performance difficult if not impossible. We are looking at you COVID-19 – from a legal point of view, this is the perfect example of the kind of event that would fall within the contractual meaning of “force majeure”.
These clauses are usually included into contracts to exclude a party from liability where that party fails to or is delayed from performing a contract, and that failure or delay was due to forces (natural or human) beyond the control of that party. Although force majeure is a concept which has been imported from the Napoleonic Code, it is often compared to the doctrine of frustration as they both invoke circumstances beyond the control of one or both parties.
However, the difference is important – frustration only applies if contractual performance is drastically different from what was contemplated by the parties whilst force majeure clauses can be triggered in wider circumstances, depending on the construction of the clause.
Moreover, and depending on the meaning of the clause, force majeure clauses can delay (and not excuse) performance of a contract whereas the doctrine of frustration works to end a contract.
Contractual obligations can be discharged if the contract is frustrated. This occurs where the contract is incapable of being performed due to an intervening event outside of the parties’ control that has rendered performance of the contract radically different from what was intended. However, readers should note that:
- A contract will be frustrated if its terms provide for an intervening event, or are wide enough to apply to the result of the intervening event
- A contract, therefore, will not be frustrated because extraneous events take place that are not anticipated and that affect the degree of difficulty of performance or profitability
- A contract will only be frustrated if the meaning of the contract shows a presumed intention of the parties not to be bound in the situation that has ensued
In order for frustration to discharge the parties’ obligations, a court requires evidence of an intervening event that:
- Drastically changes the nature of the contractual obligations and rights;
- Was not caused by the contracting parties;
- Was not anticipated by the contract or contemplated by the parties; and
- Makes performance of the contract unjust.
Our corporate commercial law team specialises in commercial law and we are one of a couple of law firms in Australia that offer fixed-fee pricing. We have the practice experience and commercial acumen to ensure your business transactions are successful. By working with us at an early stage you can save money, avoid ending up in Court and benefit from the confidence that comes from clear, straightforward advice. Book a free consultation today.