by David Alleman and Jordan Peel
The COVID-19 pandemic has understandably triggered an intense focus by parties on their contractual obligations and the effect of the force majeure clause. Force majeure clauses allocate risk and are designed to excuse a party from performing its contractual obligations upon the occurrence of certain events or “acts of God” that are beyond the party’s control. In commercial leases, for example, landlords and tenants tend to negotiate whether obligations, such as delivery and improvement of the premises and rent, are excused in the case of specified force majeure events.
Well-drafted force majeure clauses typically: (1) specify what constitutes a force majeure event; (2) specify which obligations may (or may not) be excused in the case of force majeure; (3) indicate whether a party must give notice to the other party of a force majeure event in order to avail itself of applicable protection; and (4) specify available remedies.
Is COVID-19 a force majeure event?
While there are currently no reported Nevada cases addressing whether an epidemic or a pandemic, such as COVID-19, constitutes a force majeure event, courts generally construe such clauses narrowly and enforce them according to their terms. If a force majeure clause does not specifically identify epidemics or pandemics, it is still possible that a government shutdown, such as the current one imposed by Governor Sisolak in Nevada, is specified as a force majeure event. In any event, parties should not assume that COVID-19 and any collateral effects automatically constitute force majeure events or excuse performance, rather they should seek proper counsel and plan accordingly.