COVID clause may be like Santa Claus this year

Business owners, business buyers and sellers and service providers may find some comfort this fall in discussing COVID clauses in connection with their operations.

This could be especially true up here in these mountain, rural-resort economies where seasonal fluctuations and the vagaries of tourism create an already full-plat of uncertainties.
Sadly, COVID-19 has become such an unfortunate reality in our lives that lawyer-like language such as “COVID clause” or force majeure are terms worth considering in order to provide our society some sense of security amid the uncertainty that is COVID.

This is because there just may be continued and even more disruptions in the normal flow of business this coming fall and winter caused by COVID-related shut-downs and COVID-inspired limits on how people can conduct business. All of us will be affected by such disruptions, but business people can be proactive and consider COVID clauses.

What is a COVID clause? Well, it’s a provision in a legal document such as a lease, purchase agreement or employment contract that offers some consideration for disruptions in normal business cycles caused by government-imposed or even voluntary restrictions on business caused by COVID.

Such “consideration” could be an agreement to waive lease payments or loan payments for the duration of any government shutdown. Such “consideration” could be an agreement ahead of time to compensate employees at a much lower rate while they are laid-off, yet retaining their positions, during a COVID-forced cutback in commerce.

While such COVID clauses should almost always be in writing, and should be very clear, it’s also possible that a “COVID Understanding” could be worked out verbally between two trusting parties that promises such consideration, even if it’s not in writing.

The point here, in the big picture, is that such assurances allow for business, commerce and employment to move forward without major permanent disruptions in the event of another COVID-related shutdown. These assurances give a sense of security for people on both sides of the agreement and help to tamp down the uncertainty and fear that is a natural result of living in times like these.

Why, you may ask, would a landlord, for instance, or someone who has sold a business on a term basis, willingly enter into an agreement that essentially forces or obligates them to take less money for an agreed-upon contract? The reasoning is simple. It’s better to give a renter or purchaser grace on a few month’s payments than to lose them completely over failure to pay a few months on a multi-year contract.

Such clauses spread the pain and loss around evenly, protect long term future business activity and ease the stress and insecurity that can result when there’s simply not enough money going around.

Oh, and it does something else, which may be even more important. Such clauses inspire and nurture good will, that important and unspoken element of business transactions.

It used to be that many contracts had force majeure provisions, which could also be called “act of God” clauses. These simply state that in the event of an “act of God” such as an earthquake, forest fire or meteor strike, consideration will be given to the obligated since in theory an “act of God” isn’t the fault of anyone involved.

But of course these force majeure clauses were easily litigated and dismissed as too vague and too all-encompassing to be of any practical value. Is an act of “terrorism” a force majeure and should it be accepted as deserving consideration, and so on.

Which is why a COVID clause is better. It’s specific and it should spell out the event or activity that warrants consideration. And it can be negotiated and agreed upon.

Then we can get on with life in these odd times with a COVID clause, perhaps delivered by Santa Claus, in our collective Christmas stockings.

Patrick Brower is the Enterprise Facilitator for the Grand Enterprise Initiative. He provides free and confidential business management coaching for anyone who wants to start or expand a business in Grand County. He can be reached at 970-531-0632 or at patrickbrower@kapoks.org.