COVID-19 is already having a profound impact all aspects of society, including the real estate development and construction industries. Obviously, no one can fully predict or understand the full scope of its disruption, but certain impacts are already coming into focus.
New construction projects, existing construction projects, tenant upfit projects, supply chains and labor markets are already seeing the impacts of COVID-19 and its crippling effects on commerce. Whether it’s lenders tightening credit, owners delaying the start of new projects, contractors seeking additional time on existing projects, tenants delaying occupancy, tenants withholding rental payments or the early stages of labor and material shortages that impact the critical path of ongoing projects, we are beginning to see the front end of what could be a cataclysmic event in the construction and development industries.
Now more than ever parties to development and construction contracts should carefully review those documents and identify all pertinent contractual provisions. One such common provision is a force majeure clause. Force majeure clauses often provide parties with relief when an event occurs that is beyond the control that ultimately prevented a party from performing. These clauses vary widely from contract to contract and require a careful analysis to understand the scope of the relief they afford. While it is possible a force majeure clause might specifically reference a pandemic, chances are it does not. That does not mean it does not apply to the current COVID-19 outbreak, however. A careful reading and analysis of the specific contractual language is required. Regardless of their scope, and regardless of the relief they afford, force majeure clauses almost always contain strict notice requirements. It is imperative that a party who seeks to make a claim, supported by all available background facts and proof, under a force majeure clause do so within the time prescribed in the parties’ contract. Failure to do so very well may result in the claim being denied, leaving the claiming party with no relief.
Even if your specific contract contains no such clause, there may be alternative grounds for relief. Certain legal principles may still apply in the event of unforeseen circumstances which affect a party’s ability to perform. For example, the doctrines of impossibility and frustration of purpose may provide a party unable to perform as a result of the COVID-19 with relief from its obligations. These doctrines are oftentimes captured in the text of development and construction contracts, but even if they are not, a careful analysis of the contract and surrounding facts should be preformed to determine whether either or both may apply.
While the COVID-19 outbreak is still in its early stages, parties to development and construction contracts would be well served to commence the process of carefully reviewing all of their contracts for the purpose of identifying all forms of relief available to them in the event the outbreak worsens and significantly disrupts the development and construction industries. Parties to existing contracts should identify issues and document and submit claims in a timely manner in order to fully protect their interests. Parties who are negotiating contracts should pay particular attention to ensure that all contingencies arising from the COVID-19 outbreak are adequately addressed.
Before taking any action with respect to current or future projects, it is important that parties to the surrounding contracts understand their rights and obligations. At Manning Fulton, we stand ready to assist you in that analysis and would be honored to help you through these uncertain times. Should you have any questions about how any of the foregoing issues might impact your projects or your company, please contact Judson A. Welborn or your Manning Fulton relationship attorney.