Alternatives to Force Majeure Clauses

The abrupt market shift as a result of the pandemic has left many wondering how to carry out contractual terms. Developers and contractors in particular have wanted to leverage the force majeure or “act of god” clauses that are standard in many contracts to renegotiate existing agreements. However, contracts without force majeure language, aren’t necessarily exempt.

“Most contracts include such provisions; however, in their absence the party seeking to be excused might look to other legal defenses outside of the contract terms,” says David Alvarado, an attorney with the Los Angeles offices of commercial real estate law firm Crosbie Gliner Schiffman Southard & Swanson. “Specifically, the defenses of impossibility and frustration of purpose have similar analyses, but do not require any force majeure clause or other contractual language.”

To use the defense of impossibility, the arguing party is—as stated— not possible, not simply difficult. “For a party to have its performance excused or delayed under the theory of impossibility, performance must be rendered impossible by an unforeseen event—more difficult or very expensive performance will not constitute impossibility,” explains Alvarado. “In connection with the pandemic, contractors may argue that their performance has been made impossible by general business conditions due to the pandemic; and government regulations that prevent them from operating.” The former will not be considered an impossibility that excuses performance, and the latter will depend on the location, although most local governments have not suspended construction.

Frustration is often argued when the agreement is prevented by no fault of the party’s involved. However, even this argument can be challenging to win. “The doctrine is limited to cases of extreme hardship where the subsequent unanticipated event almost totally destroys the value of the consideration to be rendered,” says Alvarado. “Note that if a contract contains a force majeure clause, it is less likely that a contractor can successfully rely on the doctrine of frustration to excuse its performance obligations. By agreeing to categories of events that will excuse a contractor’s performance through a force majeure clause, the contracting parties have made a clear and deliberate allocation such risk and can no longer contend that the non-occurrence of same was a basic assumption on which the contract was made.”

Alvarado notes that the concept of a force majeure clause may exist in the contract, even when the term it not used. “A typical clause might delineate specific events as grounds contractual relief, including change orders, acts of God, and labor strikes. In addition, some clauses may include broader language such as ‘causes beyond the contractor’s control,’ but counts may be required to construe such phrases narrowly, consistent with the otherwise enumerated events,” he says.

In addition, many construction contracts address delays that impact timing and costs. “Note as well that most contracts will have express notice provisions for claiming delays and additional costs, including the time limits for giving proper notice, the contents of such notice, who must be copied and the method of delivery,” says Alvarado. “In addition, some contracts include provisions by which the contractor may forfeit rights to adjustments if the notice is not timely and properly made. If an owner receives a delay claim, the contract should be carefully reviewed to make sure the claim qualifies and that the notice is timely and properly submitted with appropriate support.”