What is a force majeure clause in a contract?

Businesses rely heavily on contracts to govern relationships and transactions between companies. Each contract must be tailored to the specific circumstances of each agreement, so it’s critical that both parties carefully consider each term.

One term that might be included is a force majeure clause, which takes the liability off one party if specific events occur that are out of their control. These are typically things like natural disasters, such as hurricanes, or other factors that are considered extraordinary.

Why is a force majeure clause necessary?

A force majeure can help companies avoid financial responsibility for breaches of contract that occurred due to circumstances outwith their control. This doesn’t mean that the force majeure has to cover all circumstances. In fact, it’s crucial to have the specific events clearly noted in the clause so there’s no misunderstanding about what falls under it.

If an event that’s covered in the force majeure occurs, there should be specific ways to rectify the situation. This might include ending the contract, but it could also include things like extending the due date for specific points in the contract. If there aren’t any clear instructions for rectification, both parties might be able to discuss how to handle matters.

It’s critical to work with someone who understands the terms of the contract and how it’s set up. This can be beneficial during the initial review of the contract, but it can also be helpful if something happens and the contract isn’t completed as intended. It’s often best to try to take care of the breach out of court, but turning to litigation might be necessary sometimes.