SMH Blog

Searching for tag: Business Law

Can I get out of my Contract due to Coronavirus?

Question: Can I get out of my Contract due to Coronavirus?

Answer: Maybe. Let’s take a look.

1. Is there a written force majeure clause? Maybe not, but check first. Check what it covers.

2. Is there a generally implied force majeure right in every contract in Australia? No. Parties to contracts cannot terminate their written contracts just because of the coronavirus.

3. What about the rest of the world? In some jurisdictions, yes. Check if your contract is governed by the laws of another country.

4. Is my contract frustrated by coronavirus because I cannot get to a bank, or cannot get my goods to the customer on time or I cannot pay my loan as I cannot operate my business? Possibly -

(a) Can the contract no longer go ahead as envisaged due to a fundamental change in the contract? Note here that buyers cannot terminate just because a contract becomes difficult;

(b) Is there a future event that will impact the contract that will arise because of the pandemic now? For example, can couples who plan to marry get out of their contracts if the venue cannot allow a gathering?
(c) Is there a change in the law which will make the contract illegal? Difficult EGM’s that Boards wish to delay may also fall into this category.

Question: If no to the above, then what do I do to get out of my contract?

5. There are usually many ways to terminate a contract or at least put yourself into the position to terminate:

(a) Seller’s default allowing you to terminate;
(b) Misrepresentation or mistake;
(c) Badly written special conditions;
(d) Identity and name of the buyer written correctly?
(e) Assets being acquired in the contract correctly identified?
(f) Unenforceable for any other reason?
(g) For land contracts, see finance clause, due diligence rights and FIRB clause.

6. Buyers need to be very careful here as terminating incorrectly may lead to the seller or counter party having rights for wrongful termination, which may be worse than if the buyer completed the contract. There are competing interests and the sellers/suppliers have rights under the contract and at law. Careful review of the contract rights and then controlled execution are the better way to go.

Question: What if I cannot get out of it but cannot settle anyway?

7. There are many, many options –

(a) Extensions in exchange for a higher deposit
(b) Extensions in exchange for satisfaction of some conditions
(c) Forfeit deposit or prepayment of damages to obtain cancellation
(d) Negotiate, negotiate, negotiate. If an agent assisted in introducing the asset under contract, then use the agent to see what is important to the supplier, landlord or seller and see if you can provide what the other party needs in exchange for a relaxation in the conditions and if possible, cancellation.

Question: What do I do about my lease that I cannot pay?

8. First off, and as above, you should review the lease and see what the legal position is in relation to termination and security. Was it signed properly? Have the personal guarantees been signed correctly including witnessing by an ‘independent’ person? Is the property defined correctly? Is there a loophole to get out of it? If yes (and importantly, even if the answer is ‘maybe’), then that provides opportunity to negotiate.

9. As widely reported, the Government has announced the introduction of a 6 month moratorium on eviction. That all sounds very loose. Maybe the tenant still has to pay rent but if it does not, then the landlord cannot act on its legal rights to evict for that period, but can immediately act on those rights after the 6 months ends. Maybe that is what it means but no-one knows. Until we do know, we recommend clients concentrate on what they do know.

10. In that light, other options include:

(a) Use bond money and ask for an extension on topping up the bond;

(b) Ask for relief, so maybe 6 months at half rent. Landlords will probably7 want some income rather than none at all with no prospect for another tenant around the corner. Maybe the landlord will agree to the reduced rent in exchange for an extension of the lease term;
(c) Sell assets to the landlord in exchange for rent;
(d) Allow the landlord to take security over other assets, interest free, to be released in a certain amount of time.

Takeaways

11. Steps to take in relation to contracts that you want to terminate or change –

(a) First and foremost, review your legal position;
(b) Work out strategies to terminate the contract if you can, based on that legal position, but do it carefully so you do not end up in a worse position;
(c) Use what points and pressure you can to negotiate a better position thinking outside of the square to satisfy the other side so both parties can have a satisfactory outcome.

To discuss further, please contact:


  

Posted in: SMH Blog at 03 April 20

Comments

There have been no comments on this post. Be the first to Lodge a Comment

Annualised Wage Arrangements - Big Deal or Not?

    ANNUALISED WAGE ARRANGEMENTS - BIG DEAL OR NOT?


Flexibility changes

1. The Fair Work Commission made changes last year to the flexibility provisions in Modern Awards covering a broad spectrum of industries including for clerks and restaurant workers, effective 1 March 2020. The Commission is rolling out the changes to all other Modern Awards over the next few months. The changes are only for full-time employees.

 

2. Under almost all Modern Awards, employers can pay employees above the minimum (which I call in this article the ‘top-up’) in order to avoid the hassle of calculating and accounting for various entitlements, including: 

minimum weekly wages;
 allowances for uniform, meals and travel;
 overtime rates and penalties; and
 annual leave loading.


The relevant Modern Awards permit this flexibility, so long as the employee is no worse off. As this can be open to some abuse, the Fair Work Commission want to improve regulation to ensure that employees are not overly disadvantaged.
3. From 1 March 2020, employers need to calculate and account for all of the employees’ entitlements and allowances as if there were no flexibility provisions and then ensure that the employee is paid those minimums and entitlements at the end of each 12 months. That requirement will be quite difficult to implement for most employers, who have legitimately avoided accounting for those entitlements by paying the top-up by way of increased wage.

 

Mountain or a Molehill?


4. In the explanatory documents issued by the Fair Work Commission prior to these changes, the Commission explained that employers who pay a healthy top-up and are well above the minimums would not need to make any changes to their employment agreements. However, those employers who justify the non-payment of the allowances and entitlements by just scraping over the minimum, are in danger of falling foul of these new arrangements and will be subject to potential audit and sanctions from 1 March 2020.


5. Whether these changes represent a mountain or a molehill depends on the extent of the top-ups being paid, and, as always, the documents and evidence held by the employer.


6. First step for all employers, whether the top-ups are large or small, is to assess to whom it will apply –
(a) which employees are full-time;
(b) which employees are subject to a Modern Award that has the change imposed;
(c) which employees have flexible entitlements paid by the top-up and what entitlements are they? 

 

7. Next step is to work out how much should be paid to the full-time employee to make sure that if the minimum wage was being paid under the Award, what would be the monetary value of the entitlements that the employee would otherwise receive? Then compare that to the top-up being paid and the employer can see if it is enough.


8. Next step is to work out historically if the full-time employee has been underpaid and, if so, make it up.


9. Next step is to vary any written employment contract, or create one, so that the employee agrees that the top-up is sufficient, the calculations are agreed to by the employee and that the employee agrees to not receiving the entitlements that are subject to flexibility and prefer to have the top-up in cash. This needs to be done in the manner prescribed in the Modern Award. 

 

Takeaway


10. We suggest all employers go through the above steps, now. By doing that, employers will also be writing out their justification of the top-ups which will provide ready justification for Fair Work if there is any complaint and audit.


11. Given the recent spate of Fair Work’s activity in this space and the devastating reputational damage that follows (Calombaris and 7-Eleven to name but two), I do not expect any leniency if there are breaches of these laws.


For any questions, please contact Frank Dwyer. 

 

Frank Dwyer Special Counsel
Accredited Specialist Business Law Small Myers Hughes Lawyers

Direct: 07 5552 6647
Email: fdwyer@smh.net.au

www.smh.net.au | twitter | linked in SMH Legal Pty Ltd ABN 61 117 403 853


Liability limited by a scheme approved under Professional Standards Legislation
 

Posted in: SMH Blog at 18 March 20

Comments

There have been no comments on this post. Be the first to Lodge a Comment