COVID-19 and Commercial Contracts

Dear All, Please find some insightful notes from a legal firm with whom we exchange business and technical support, Pavia & Harcourt LLP.  

These are unprecedented times, and we know our clients have many questions regarding how to navigate the downturn in business due to COVID-19. We are here to discuss your particular issues with you at any time, but we briefly summarize the issues we expect are at the forefront of your concerns at the moment.

Can there be any relief from contracts?

The determination whether adherence to otherwise valid contracts will be suspended or terminated due to the virus will depend on the facts of each case. It depends not only on the precise wording of the contracts (including commercial leases), but also on the particular emergency orders and other government directives that are applicable to the business in question. In a rapidly changing scenario, the enforceability of particular contracts and provisions must be addressed on a case-by-case basis.

Legal defenses to contractual obligation

There are legal concepts, such as (1) waiver, (2) the defense of impossibility, and (3) force majeure that should be considered in evaluating your particular contractual obligations. We are happy to discuss these issues with you.

What can you do?

1. Renegotiate Existing Obligations We urge you to be open and transparent with the counterparty to your contracts and explain your difficulties. In some circumstances, you might be able to reach a voluntary modification that serves both sides’ interests. In that case, we also urge you to seek legal counsel, as oral modifications, or poorly written amendments, might not achieve your desired objective.

2. Insurance Coverage Insurance polices are governed by the terms of the policy. Many policies have provisions for business interruption, which might be applicable if you are required to close your business. Some policies might require there to be “physical damage” to your premises for there to be coverage, even if you are ordered to shut down operations by governments directives or orders. The issue of whether contamination, or potential contamination, by a virus constitutes such physical damage is sure to be litigated.  Insurance policies have time limitations for you to file a claim, so review of insurance policies should be given priority status.

3. Relief by Government Action Federal, state and local government enactments and policy decisions are being reported at a fast pace. Many businesses are being afforded direct relief. For example, New York City is providing grants and zero interest loans to certain businesses. (See https://www1.nyc.gov/site/sbs/businesses/covid19-business-outreach.page.) Pavia & Harcourt LLP is closely monitoring these developments and can assist in the application process.


About Pavia & Harcourt LLP

Established in 1951, Pavia & Harcourt LLP is a business law firm concentrating in international commercial and corporate transactions, banking, media and entertainment, real estate, litigation and arbitration, intellectual property, estate planning and administration, and matrimonial law. We are based in New York City.

Contacting Pavia & Harcourt LLP

Questions regarding matters discussed in this publication may be directed to any Pavia & Harcourt lawyer with whom you may have consulted previously.

This publication by Pavia & Harcourt LLP is for informational purposes only.  It does not constitute legal or other professional advice or an opinion on specific facts or matters, nor does its distribution establish an attorney-client relationship. This material may constitute Attorney Advertising as defined by the New York Court Rules. As required by New York law, we hereby advise you that prior results do not guarantee a similar outcome.

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