How Will COVID-19 Impact Existing Contracts?

How Will COVID-19 Impact Existing Contracts?

Many of us will be faced with unique contractual issues once Florida reopens for business. Questions will arise as to whether contracts remain enforceable in light of the delays related to COVID-19. While it is unlikely that anyone can offer definitive answers at this time, it is important that we begin to engage in conversations about how to move forward when the time comes.

Recently, in 2018, our neighbors to the east faced a myriad of legal issues related to the devastating impact of Hurricane Michael. In that unfortunate situation, many contractual issues were resolved by the sobering fact that property, machinery, and entire businesses were destroyed. The affirmative defense of “impossibility of performance” was widely alleged in and out of court. It is not surprising that lawsuits related to Hurricane Michael remain ongoing.

With the State of Florida effectively ordering non-essential businesses to close and ordering a large percentage of the population to stay at home, a countless number of contracts will be affected. By way of example, in a construction contract with a term calling for the project to be completed within two years, does COVID-19 extend those two years by the amount of time the contractors were not able to and/or prohibited from completing the project? The answer is likely “yes” if all contractors were prohibited from working. However, there will undoubtedly be situations where certain subcontractors were able to perform their scope of work, but others were not due to COVID-19. Uncertainties such as these are likely to arise in many areas involving contracts and will result in disagreements and litigation.

Courts in Florida traditionally examine the plain language of contracts before other considerations. Most contracts which include deadlines also provide for extensions under certain unforeseen circumstances, with two of those oftentimes being “acts of God” and “acts of governmental authority.” Here, it can be argued that COVID-19 is an act of God, and that, along with the various orders of the Governor and local agencies, resulting in delays that could not have been foreseen by the parties at the time of agreement. We do not expect that all parties will share the same opinions, and as such, we expect a significant amount of litigation to ensue as a result of COVID-19, not only in the area of contract law, but in other areas as well. If you find yourself entangled in such a situation, it is imperative to consult a lawyer.