Should you include a force majeure clause in all your contracts?

Should You Include a Force Majeure Clause in All Your Contracts?

When it comes to drafting contracts, one clause that is often overlooked or underestimated is the force majeure clause. This clause addresses the possibility of unforeseen events or circumstances beyond the control of either party, which may prevent or delay the performance of contractual obligations. With the increasing frequency of natural disasters, pandemics, and other disruptive events, it's crucial to consider whether including a force majeure clause in your contracts is a wise decision.

What is a Force Majeure Clause?

A force majeure clause, also known as an "act of God" clause, is a contractual provision that excuses one or both parties from performing their obligations under the contract due to extraordinary circumstances beyond their control. These circumstances may include natural disasters (such as earthquakes, hurricanes, or floods), acts of war, labor strikes, governmental actions, or other unforeseen events that make it impossible or impracticable to fulfill the contractual obligations.

The purpose of a force majeure clause is to allocate the risk of such events between the parties and provide a mechanism for temporarily suspending or terminating the contract without incurring liability for breach of contract. It aims to strike a balance between the parties' interests and ensure fairness in the event of extraordinary circumstances. A common solution involves a Technology Licensing.

Benefits of Including a Force Majeure Clause

There are several benefits to including a well-drafted force majeure clause in your contracts:

1. Risk Allocation: A force majeure clause helps allocate the risk of unforeseen events between the parties, providing clarity on their respective obligations and liabilities in such situations.

2. Contractual Flexibility: By including a force majeure clause, you introduce flexibility into the contract, allowing for temporary suspension or termination of obligations without constituting a breach of contract. This can be particularly important in long-term contracts or those involving significant investments.

3. Dispute Prevention: A clear and comprehensive force majeure clause can help prevent disputes between parties by establishing a framework for addressing extraordinary circumstances. This can save time, money, and potential legal battles.

4. Compliance with Industry Standards: In certain industries or jurisdictions, including a force majeure clause may be a standard practice or even a legal requirement. Failing to include such a clause could put you at a disadvantage or expose you to unnecessary risks.

Drafting an Effective Force Majeure Clause

While the benefits of including a force majeure clause are evident, it's crucial to draft the clause carefully to ensure it serves its intended purpose effectively. Here are some key considerations:

1. Define Covered Events: Clearly define the types of events that constitute a force majeure event. This may include specific examples (e.g., natural disasters, acts of war, pandemics) or broader language (e.g., "any event beyond the reasonable control of the parties").

2. Specify Notification Requirements: Establish clear procedures for one party to notify the other of a force majeure event, including deadlines and required documentation.

3. Outline Remedies: Specify the remedies available to the parties in the event of a force majeure event, such as temporary suspension of obligations, contract extension, or termination rights.

4. Consider Mitigation Efforts: Address whether the parties are required to take reasonable steps to mitigate the effects of the force majeure event and resume performance as soon as possible.

5. Tailor to Your Needs: Ensure that the force majeure clause is tailored to your specific industry, contract type, and risk tolerance. A from a reputable source like Genie AI can be a good starting point, but it should be customized to fit your unique circumstances.

When to Include a Force Majeure Clause

While including a force majeure clause can be beneficial in many situations, there are certain types of contracts where it may be particularly important:

1. Long-term Contracts: For contracts with an extended duration, such as supply agreements or service contracts, a force majeure clause can provide valuable protection against unforeseen events that may arise over time.

2. High-value Contracts: When significant investments or financial commitments are involved, a force majeure clause can help mitigate the risks associated with extraordinary events that could disrupt performance.

3. International Contracts: Contracts involving parties from different countries or jurisdictions may benefit from a force majeure clause to account for potential political, economic, or regulatory changes that could impact performance.

4. Industry-specific Requirements: Certain industries, such as construction, energy, or transportation, may have specific regulations or industry standards that require the inclusion of a force majeure clause in contracts.

What events should you list?

When drafting a force majeure clause, it's crucial to consider potential events that could disrupt performance. Common inclusions are natural disasters (floods, earthquakes), acts of war or terrorism, labor strikes, and government actions beyond the parties' control. However, the specifics may vary based on your industry and location. Consulting or can provide helpful examples. Ultimately, the goal is to anticipate reasonably foreseeable circumstances that could impede contractual obligations.

Does COVID still count?

The COVID-19 pandemic has undoubtedly been a major force majeure event, but its ongoing impact varies. Many jurisdictions have lifted emergency orders, and businesses have adapted operations. However, some areas still face disruptions from new variants or outbreaks. As a general guideline, COVID may still trigger force majeure clauses if it directly impedes contractual performance in a given situation.

Ultimately, the applicability depends on the specific contract language and circumstances. Consult legal counsel for guidance on your particular agreements and jurisdiction. You can also refer to resources like the or for more context.

Are these clauses enforceable?

Force majeure clauses are generally enforceable, but their enforceability depends on the specific language used and the circumstances of the case. Courts tend to interpret these clauses narrowly, so they must be carefully drafted to cover the intended events. Visit for a detailed analysis of force majeure clause enforceability.

To increase the chances of enforceability, the clause should clearly define the triggering events, outline the parties' rights and obligations, and specify any notice requirements. Consulting legal counsel is advisable when drafting or reviewing these clauses. For more guidance, refer to . Organizations often document this in a SaaS Agreement.

Should you define 'reasonable effort'?

When including a force majeure clause in your contracts, it's advisable to define what constitutes "reasonable efforts" to mitigate the effects of the event. This helps avoid disputes and provides clarity for all parties involved. The on force majeure clauses recommends defining reasonable efforts as "commercially reasonable efforts to mitigate the effects of the force majeure event." Alternatively, you could reference for more examples of how to define this term in a clear and practical manner.

Can it apply to payment delays?

Force majeure clauses are primarily intended to excuse delays or non-performance due to extraordinary events beyond the parties' control, such as natural disasters, wars, or government actions. However, their applicability to payment delays is subject to interpretation and may depend on the specific circumstances and wording of the clause.

Generally, payment obligations are not excused by force majeure events unless the contract explicitly states so or the event makes payment genuinely impossible (e.g., a banking system shutdown). It's advisable to consult and seek legal counsel to ensure proper drafting and interpretation of force majeure clauses concerning payment obligations.

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