Covid-19 leads to entrepreneurs having to decide which debtors are payed in whole or partly. We receive questions about (non) payment of rent, franchise fee, deliveries, service costs, etc. etc. The main rule is a deal = a deal. The current pressure makes many parties willing to come to new agreements. If that does not happen or if you want to know which legal elements are important, read on if you want to know the perspective under Dutch law! It is important to realize that there is hardly any case law dealing with (non) performance of contracts as courts are closed. So there remains a lot of uncertainty.
New agreement
Parties are free to renew an agreement. A new agreement replaces the old one. You can therefore agree that certain services, such as the payment term for a delivery, can be adjusted. Be careful, because deadlines or claims from third parties can play a role. And document the new agreement well enough that even after the Corona crisis is over, everyone still understands what has been changed and why.
If it is not possible to adjust the agreements smoothly by mutual agreement, then the concepts of force majeure or unforeseen circumstances may be invoked. Mind you, taking the matter to court is unlikely to have the wanted outcome. Courts only handle very urgent matters.
Force majeure
Because of the Corona misery, obligations cannot be fulfilled. Force majeure seems to be the magic word in the media. This is only legally correct in a certain number of cases. If measures taken by the government cannot be complied with, an obligation may constitute force majeure. This is the case, for example, when a restaurant is closed, as a result of which the exploitation obligation under the lease cannot be met. However, the decline in turnover due to the Corona crisis, as a result of which the rent cannot be paid, does not qualify as force majeure.
Unforeseen circumstances
The Corona crisis may qualify as an unforeseen circumstance. No one had anticipated this, but know that past judgments have reacted very reluctantly to the appeals based upon unforeseen circumstances. If there are unforeseen circumstances – for example because both parties accept this or if a judge determines this – a renegotiation of the contract can take place if the maintenance of the agreements is unreasonable. We will then see longer payment terms being agreed. Creativity is then necessary and we notice that a fresh view from a legal outsider can help. Please note that claiming unforeseen circumstances for a contract entered into when the pandemonium was already apparent will not succeed.
A Material Adverse Change clause (MAC) is regularly included in M&A contracts. This provision states that in the event of a drastic change in circumstances, the agreements made will no longer apply or must be adjusted. The exact wording of the MAC clause is very important as well as the intentions of the parties. Sometimes specific changes are defined in the MAC clause and the concepts of force majeure and unforeseen circumstances must be used. It will therefore depend on the wording of this clause whether the Corona pandemic will fall within the scope of this article.
In this contribution, we discuss some of the main points of the influence of the Corona crisis on contractual agreements. We will have to assess each case on its own and then – as always – consider all the circumstances of the case.
Valegis Advocaten has decided to charge an adjusted rate for all Corona-related questions. We are involved in various initiatives to support healthcare, for example. For example, see all messages with #allemondkapjesverzamelen. In this way we also try to do our bit.
If you have any questions about this topic, please contact Susanne van Dijkum. Do you have any other Corona crisis-related questions? Please do not hesitate to contact the Corona crisis advisory team of Valegis Advocaten or your regular contact person at Valegis.
We strive for completeness in our reporting but cannot guarantee this because developments follow each other at a rapid pace. The Dutch government regularly comes up with additions to or improvements of (new) regulations. As a result, our reports may be outdated at the time you read them. That is why we mention the date and time of posting with each message.
