Force Majeure Clauses: Review and Negotiate with AI

What is a Force Majeure Clause?

A force majeure clause helps protect parties when unexpected events make it impossible to fulfill a contract. These clauses have become increasingly important in our unpredictable world, where global events can quickly disrupt business operations. 

The principle of force majeure, which translates to "superior force" in French, recognizes that certain events can occur that are entirely outside the control of the contracting parties. From natural disasters to pandemics, force majeure clauses provide a legal safety net for unforeseen circumstances.

What does a force majeure clause do?

• It begins with a clear definition of qualifying events, outlining specific circumstances that would trigger the clause
• Specifies notification requirements, detailing how and when a party must inform the other of their intention to invoke force majeure
• Outlines the consequences of invoking the clause, which may include suspension of performance, extension of deadlines, or in some cases, termination rights

The duration of relief provided by the force majeure clause is crucial. Some clauses may specify a maximum period for which obligations can be suspended before more drastic measures, such as contract termination, come into play. Termination rights themselves are often addressed, providing guidance on when and how parties can end the contract if the force majeure event persists beyond a reasonable timeframe.

It's important to note that the applicability of a force majeure clause depends on several factors. The foreseeability of the event at the time of contract formation is a key consideration; if an event was reasonably foreseeable, it may not qualify as force majeure. The specific language used in the clause is also crucial, as courts will often interpret these provisions strictly. 

The efforts made by the non-performing party to fulfill its obligations despite the force majeure event are typically considered, as is the overall allocation of risk between the parties as outlined in the contract.

Where To Use Force Majeure Clauses

Force majeure provisions are valuable in many types of contracts, including:

• Sales Agency Agreements: Force majeure language protects both principals and agents in long-term relationships that can be disrupted by unexpected events.
• Venue Rental Agreements: For event planning, a well-crafted force majeure section is crucial to manage cancellations or postponements due to unforeseen circumstances.
• Consulting Agreements: Such provisions safeguard both consultants and clients when unexpected events prevent service delivery or reception.
• Supply Chain Contracts: Force majeure terms are essential in managing disruptions to production, transportation, or delivery of goods.
• Construction Contracts: Given their long durations and susceptibility to external factors, construction agreements benefit greatly from force majeure protection.
• Service Agreements: Whether for IT, maintenance, or other services, force majeure language helps manage expectations when unforeseen events disrupt service delivery.
• License Agreements: A force majeure provision protects both licensors and licensees from breaches due to circumstances outside their control.

Negotiating Force Majeure Clauses

Negotiating force majeure clauses requires careful consideration and a balanced approach to ensure that the resulting provision is fair, comprehensive, and effective. The negotiation process should aim to create a clause that provides clarity and protection for all parties involved, while also maintaining the integrity and intent of the overall contract:

1. Define qualifying events: While it's impossible to predict every scenario that might arise, list specific events that trigger the clause, such as natural disasters, wars, or pandemics. While being specific is important, strive for a balance between specificity and flexibility. This can be achieved by including a catch-all phrase to cover unforeseen circumstances, such as "and any other events beyond the reasonable control of the parties."
2. Address foreseeability: Exclude events that could have been reasonably anticipated at the time of contract formation to maintain the integrity of the agreement. This prevents parties from using the clause to escape obligations they should have anticipated, maintaining the integrity of the contract. For example, a company operating in a region prone to hurricanes should not be able to claim force majeure for a typical hurricane season, as this is a foreseeable event in that area.
3. Outline notification requirements: Specify how and when a party must inform the other of their intention to invoke force majeure, including details about the event's nature and expected duration. Clear notification procedures help ensure that both parties are promptly informed of any issues and can begin to address them as quickly as possible.
4. Detail consequences: Clearly state what happens when the clause is invoked, such as suspension of performance, extension of deadlines, or potential termination rights. Clearly state these effects and consider including provisions for partial performance if only part of the contract can be fulfilled due to the force majeure event.
5. Address mitigation efforts: Include language requiring the affected party to make reasonable efforts to overcome the event's effects and resume performance as soon as possible. This helps ensure that parties don't use the clause as an excuse to avoid their obligations when alternatives might be available.
6. Define termination rights: Specify when parties can end the contract if the force majeure event persists beyond a reasonable timeframe, clearly stating the duration that triggers this right. This period should be clearly defined, whether it's 30, 60, 90 days, or longer, depending on the nature of the contract and the industry involved.
7. Clarify payment obligations: Address whether payments must continue during the force majeure event, especially for services already rendered or goods already delivered.
8. Consider rescheduling provisions: For time-sensitive contracts, include terms for rescheduling without penalties in case of force majeure events.
9. Address industry-specific risks: Tailor the clause to include risks specific to your industry or the nature of the contract. For example, a contract in the agricultural sector might include specific provisions related to crop failures due to weather events.
10. Review governing law: Ensure the clause aligns with the contract's governing law, as interpretations of force majeure can vary by jurisdiction.
11. Strive for mutual protection: Aim for a balanced clause that protects both parties equally, rather than favoring one side, to promote fairness and enforceability.
12. Outline refund policies: For event-based agreements, clearly state refund policies for deposits or prepayments in case of force majeure cancellations. This can help prevent disputes and ensure that both parties understand their financial obligations in the event of a cancellation due to force majeure.
13. Include dispute resolution mechanisms: Specify how disputes related to the invocation of the clause will be resolved, whether through mediation, arbitration, or other means.

By carefully negotiating these aspects of a force majeure clause, parties can create a robust provision that provides clear guidance and protection in the face of unforeseen events. This approach minimizes potential disputes, ensures a fair allocation of risk, and ultimately contributes to a more stable and predictable contractual relationship. 

AI Contract Review for Negotiating Force Majeure Clauses

To give you a sense for the benefits of leveraging AI Contract Review Software trained by lawyers, we’ve selected some sample language our software presents to customers during a review of Force Majeure Clauses in Venue Rental Agreements. Keep in mind that these are static in this overview, but dynamic in our software - meaning our AI identifies the key issues and proactively surfaces alerts based on importance level and position (company, 3rd party, or neutral) and provides suggested revisions that mimic the style of the contract and align with party names and defined terms.

If you’d like to see more, we invite you to book a demo.

Force Majeure in Venue Rental Agreement‍

Sample Language for Owner Position:‍

Neither Party shall be liable for any losses, damages (including attorney’s fees, court costs, and consequential damages), delay or failure to perform in whole or in part resulting from causes beyond its reasonable control, including, but not limited to, acts of God, fires, disasters, accident or other casualty, power outages, labor disputes, civil unrest, war, embargoes, acts or threats of terrorism, curtailment of transportation services or facilities, or governmental action (to include any local legislation regarding liquor license requirements), provided it promptly notifies the other Party and uses reasonable efforts to correct its failure to perform. Should the Event be canceled due to a Force Majeure event, all fees paid by Renter will be returned to Renter within [●●] ([●●]) days or Owner will allow the Event to be rescheduled, pending availability, with no penalty, and there shall be no further liability between the Parties.

Guidance for Owner Position:

‍In a Venue Rental Agreement, addressing the concept of "force majeure" is essential, as it exempts parties from liability due to unforeseen circumstances beyond their control. By incorporating a force majeure clause, the owner and affiliates can be protected from potential legal disputes and financial losses arising from such situations.

For example, if a natural disaster damages the venue and renders it unusable for the scheduled event, the force majeure clause would exempt the owner from liability for any losses or damages incurred by the renter. This provision offers legal protection and reduces potential financial exposure for the owner.

Example Alerts That AI Contract Review May Flag for Owners:

• May be missing an article regarding force majeure.
• May be missing a clause exempting the owner from liability for force majeure events.
• May include a clause requiring the owner to use reasonable efforts to rectify any performance failures during force majeure events.
• May be missing a clause stating delays or nonperformance shall not excuse the renter's payment obligation.
• May include a clause requiring the affected party to promptly notify the other party of any performance failures.
• May include a clause allowing for refund or rescheduling without penalty in case of cancellation due to force majeure events.

Sample Language for Renter Position

Neither Party shall be liable for any losses, damages (including attorney’s fees, court costs, and consequential damages), delay or failure to perform in whole or in part resulting from causes beyond its reasonable control, including, but not limited to, acts of God, fires, disasters, accident or other casualty, power outages, labor disputes, civil unrest, war, embargoes, acts or threats of terrorism, curtailment of transportation services or facilities, or governmental action (to include any local legislation regarding liquor license requirements), provided it promptly notifies the other Party and uses reasonable efforts to correct its failure to perform. Should the Event be canceled due to a Force Majeure event, all fees paid by Renter will be returned to Renter within [●●] ([●●]) days or Owner will allow the Event to be rescheduled, pending availability, with no penalty, and there shall be no further liability between the Parties.

‍Guidance for Renter Position‍

In a Venue Rental Agreement, it is essential to employ clear, easily understandable language that benefits both parties, especially the Renter. This approach involves using consistent legal terminology and avoiding complicated legal jargon, making the agreement more accessible and comprehensible.

The significance of this suggestion lies in helping the Renter better grasp their rights and obligations, reducing the likelihood of disputes or misunderstandings. By ensuring that the terms are fair and balanced, the Renter's interests are safeguarded, and the risk of potential legal disputes or liabilities is minimized.

For example, when negotiating a Venue Rental Agreement for a large event, transparent language allows the Renter to effortlessly understand terms and conditions, such as payment schedules, cancellation policies, and liability clauses. This clarity enables the Renter to make informed decisions and negotiate any necessary changes, ultimately leading to a more favorable outcome.

While there might not be specific statutes or laws directly related to clear language in a Venue Rental Agreement, general contract law principles, such as the duty to act in good faith and the requirement for a meeting of the minds, are relevant. Adhering to these principles and ensuring a mutually beneficial agreement helps the Renter protect their interests and minimize potential legal risks.

Example Alerts That AI Contract Review May Flag for Renters:

• May be missing an article regarding force majeure.
• May include a clause exempting only the owner from liability for force majeure events.
• May be missing a clause requiring the owner to use reasonable efforts to rectify any performance failures during force majeure events.
• May include a clause stating delays or nonperformance shall not excuse the renter's payment obligation.
• May be missing a clause requiring the affected party to promptly notify the other party of any performance failures.
• May be missing a clause allowing for refund or rescheduling without penalty in case of cancellation due to force majeure events.

Force majeure clauses are critical components in a wide range of contracts, providing essential protection against unforeseen circumstances that can disrupt business operations. As we've explored, these clauses require careful attention to ensure they adequately protect all parties involved while maintaining the integrity of the contract.

The complexity of force majeure clauses, combined with their potential impact on contractual obligations, makes them prime candidates for AI-assisted review. LegalOn’s solution, trained by legal experts, can significantly streamline the contract review process by:

1. Identifying key issues in force majeure clauses
2. Proactively surfacing alerts based on importance and party position
3. Providing tailored suggestions for clause improvements
4. Ensuring consistency with party names and defined terms

This AI-powered approach not only saves time but also enhances the quality and thoroughness of contract reviews, potentially reducing legal risks and improving overall contract performance.

To fully experience the power of AI in contract review, particularly for negotiating complex elements like force majeure clauses, we invite you to see our software in action. Book a demo today to discover how our AI-powered contract review tools can transform your legal processes, providing deeper insights, faster reviews, and more robust contract protection.