What do I need in my business contracts to avoid Covid-19 related problems?
Many businesses have run into issues where their supply contracts or sale agreements haven’t anticipated what should happen in the type of situation we are seeing now where a contract can’t be completed because of Covid-19 shutdown or staff illnesses.
Two key legal clauses that could help where circumstances beyond your control disrupt your business are:
- A force majeure clause which allows a party to delay its performance, such as supplying goods or making payment, if a cause outside of everybody's control, such as a pandemic, makes them unable to fulfill their obligations under the contract.
- Material adverse change clause allows one party to end the contract if the other party’s situation changes substantially. This could be a financial position change. These clauses are more suited to finance contracts or business sale contracts.
- If your contract doesn’t deal with unexpected events, the legal concept of frustration can automatically end a contract in situations where it is impossible to carry out the contract or the purpose of the contract is no longer achievable or the contract would be illegal.
While every situation is different, having these clauses in your contract can be a ‘get out of jail’ card if the circumstances are right.
What does this mean for business at the moment?
If your business is being troubled because suppliers cannot fulfill their agreements then getting advice to see if your contract covers such circumstances is vital,
If your business has obligations to supply under an agreement, careful consideration of agreements may reveal some options for you,
Now is also a great time to have your suite of agreements and arrangements reviewed to make sure they protect you now and in the future.
OFRM business lawyers Lachlan Edwards and Siobhan Liston can help you understanding your rights regarding your business contracts. Contact Lachlan Edwards on 0427 916 442 or Siobhan Liston on 03 5445 1000 for assistance.