Contracts During Covid Guide

While the COVID-19 pandemic affects all of our lives, business and transactions continue. What should be considered in drafting current contracts in light of the ongoing COVID-19 issue?
Problems in Drafting Contracts

It is harder to draft contracts when a material uncertainty can affect the terms of the contract. COVID-19 disease creates material uncertainty in several respects. First, its health consequences can affect the ability of any individual to perform under any personal services contract. Second, its economic consequences can affect the ability of any contracting party to timely pay for any product or service under any contract. Third, it has led to significant government restrictions that can affect the ability of any business to operate under its typical contract. Fourth, as perhaps the biggest uncertainty, no one can confidently predict either when these other uncertainties will end or the magnitude of impact of these other uncertainties for any specific contract.

Possible Solutions to Consider

Businesses need to be flexible in drafting their contracts. A “standard” contract that a business used for many years may need to be modified because of COVID-19 issues. Businesses relying on prepaid service contracts may need to be willing to hold the prepayment in some type of escrow, which can easily refund the prepayment if the business cannot provide its service. Businesses offering financing to their customers may need to be willing to extend more favorable payment terms until general economic conditions improve. Businesses that provide services at a fixed location may need to be willing to offer those services online, if feasible (perhaps at a reduced price). Businesses that are used to receiving fixed payments from other businesses may need to be willing to tie these payments at least partially to the other business’ economic position (such as percentage rent based on a commercial tenant’s income). Consumers also need to be flexible in their expectations. It would be unrealistic to expect a hotel or banquet hall to be able to provide space for a May 1 party of 100 hundred people given current government restrictions. Why sign a contract that likely will be breached?

Contractual Modifications

As COVID-19 affects existing contracts as well as new contracts, it may also be important to properly draft an amendment to a contract to account for COVID-19 issues. If a contracting party is unlikely to meet its contractual obligations, it may be prudent for it to give advance notice of the problem to the other party to the contract, and the parties can negotiate a contractual amendment. A contractual modification may be a better result than breaching the contract and being sued.

Retain A Contract Lawyer During the Novel Coronavirus (COVID-19) Pandemic

COVID-19 requires consideration of many legal issues that were not previously contemplated. A contract lawyer has the experience and expertise to best advise contracting parties about these legal issues. Before signing any contract, a contracting party definitely should retain a contract lawyer to counsel on what terms and conditions should be included in the contract and help draft the contract.