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Contractual clauses in a post-COVID-19 world

Tuesday, October 13, 2020
By Ashley Winberg

The effects of COVID-19 have been immense and widespread. COVID-19 has changed how we communicate with one another and the ways in which we do business. It has also made us realize that pandemics and events, once only conceivable in the movies, can significantly impact every aspect of our daily lives.

COVID-19 has also taught the importance of well-drafted comprehensive force majeure clauses and other standard contractual clauses, which should now be scrutinized more than ever and redrafted to provide greater certainty.

Price and Payment Terms

Pandemics such as COVID-19 negatively impact supply chains and the availability of labour, which, in turn, increase operating costs. As operating costs rise, contractors and suppliers will want to pass these additional costs onto their customers. Accordingly, clauses pertaining to price and payment terms should be carefully reviewed going forward. Furthermore, given these uncertain times, fixed-price contracts, which are preferable for condominium corporations, may be less common and if a fixed-price contract is proposed, the same should be carefully reviewed by a solicitor prior to a condominium corporation entering into the same. In a fixed-price contract, it is essential that the clauses pertaining to the contract price, scope of work, supplies, exclusions and payment terms be carefully scrutinized. As it is imperative that a condominium corporation that is a party to a proposed fixed-price contract has a clear understanding of what work and what supplies are included in the fixed price and if there are exclusions, the circumstances giving rise to the exclusions are clearly stated and are reasonable.

Alternative Dispute Resolution

During the height of COVID-19 this past spring, the court system largely shut down. Accordingly, dispute resolution clauses in a post COVID-19 world should be redrafted to ensure that the same contain alternative dispute resolution mechanisms such as referring the dispute to a predetermined neutral third-party expert for determination as well as mediation and/or arbitration.

COVID-19 Clause

Force majeure clauses in any contract entered into going forward will likely not apply to any future consequences of COVID-19 or to any future waves of COVID-19 since those consequences and waves are now foreseeable. Until there is a wide spread vaccine and COVID-19 is no longer a global pandemic, it is advised that any future contracts include a COVID-19 clause. It should address the current and future consequences of COVID-19 on the performance of the parties’ respective obligations, and advise how COVID-19 and the measures implemented in response to the same may impact the parties’ respective rights and obligations.

Force Majeure Clauses

Although it is presumed that force majeure clauses in contracts entered into going forward will not apply to any future consequences or waves of COVID-19, the pandemic has significantly impacted contractual performance. Force majeure clauses should be carefully reviewed and redrafted in future contracts. Condominium corporations should have their solicitors carefully review the force majeure clause in any proposed contract to ensure that the same applies to any future health emergencies, pandemics, geopolitical events, nuclear, chemical or biological contaminations, contagions and measures required to comply with any laws or government orders. Solicitors should also ensure that force majeure clauses specify the consequences of a force majeure event in detail, and delineate the termination rights in the event of an extended force majeure event as well as the resulting consequences of the same.

The foregoing is just a snapshot of some of the contractual clauses which should now be carefully scrutinized and redrafted by solicitors going forward. Additional contractual clauses that should be carefully examined post COVID-19 include those that pertain to insurance coverage, disease prevention, workplace safety, performance standards and termination. However, the power to instruct solicitors to review and redraft these now critical contractual terms rests in the hands of condominium corporations, many of whom are now suffering from operating deficients due to unanticipated increase in cleaning costs and common expense arrears.

Some condominium corporations that see the value of reviewing and redrafting these key contractual clauses will significantly reduce the likelihood of a dispute arising as well as the time and money spent resolving a dispute should one arise, which in a post-COVID-19 world is now uncertain.

Ashley Winberg is a corporate lawyer specializing in condominium law at Elia Associates. She assists a diverse array of condominium boards and management companies throughout Ontario on all matters relating to condominium governance and management. She is also the chair of CCI Huronia’s Communication Committee, a director on CCI Huronia’s Board of Directors, and a member of CCI Toronto’s Volunteer Committee and CCI Toronto’s By-Law SubCommittee.

The preceding article appeared in the August issue of CondoBusiness

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