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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.

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