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Can I get out of my contract as a result of COVID-19 problems?

View profile for Tony Hughes
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The outbreak of coronavirus (COVID-19) has created so many problems for so many businesses that it can be difficult to provide any specific guidance across a wide range of different sectors that will have any lasting impact in a blog such as this.

For many businesses their trade has completely disappeared e.g.

  • Those in the leisure, hospitality or entertainment sectors.
  • Those who are self-employed who cannot work from home (many of whom are in the above sectors).

Many of those who are suffering losses may not benefit from any of the “compensation schemes e.g.

  • Those who are self-employed who have only recently started their business.
  • Those who have been made redundant.

Everywhere, businesses are suffering losses, but in situations where the Government is not able to help, there will often be some conflict about who should bear that loss. The general public have seen this in the holiday sector: if you cancelled your holiday before it became impossible for it to be undertaken, you might be in a position in which you may still be liable to pay for your flights and accommodation but are unable to claim on your travel insurance. However, if you waited until the flights were cancelled or the accommodation was closed, you may get your money back.

There are similar issues impacting all businesses. We have seen it with theatres, contract cleaners, wedding venues and many other owner-managed and family businesses. It is a good time to remind those businesses to take care when reviewing contracts with suppliers and customers. Don’t assume that the current crisis brings your obligations (or theirs) to an end. In addition, you shouldn’t assume that you can cancel a contract without consequences; wrongful cancellation can lead to additional liabilities.

The contract may contain terms dealing with “force majeure”, but whether or not the current crisis falls within the scope of those clauses will depend upon a number of different factors e.g.

  • The terms of the contract;
  • The nature of the obligations;
  • The precise nature of any restrictions or regulations which may apply.

If the contract does not contain any force majeure clauses, or if those clauses do not apply, it may be possible for either party to claim that the contract is “frustrated” – a legal concept, which if it applies, might allow that party to be released from those contractual obligations. The factors set out above will be important there as well.

So, what should you do to ameliorate these problems?

  • Review your contractual obligations – both commercial and employment contracts – so as to ensure you understand what you are entitled to do.
  • Bear in mind that everyone is suffering and that how you react in these difficult times will help to build relationships with those with whom you do business.
  • Consider carefully whether it is necessary to cancel the contract and what the implications of that might be.