During Covid-19, contract reviews for construction contracts are more recommended than ever. In a previous episode of Talking Legal, we looked at delay and the Force Majeure clause on construction contracts from a builder’s perspective. This episode, we explore the clause from the perspective of a developer or principal.
To recap, a Force Majeure clause concerns “acts of God” and the following elements:
- Events that occur by human or natural elements
- Events that cannot be reasonably foreseen by the contracting parties
- Events outside of the control of the contracting parties (they could not prevent it from happening)
1. Is the situation any different for a Developer’s or Principal’s side of the contract?
If a force majeure clause is included in a construction contract, it’s important to look at it regardless. However, the perspective of a builder’s is completely different to the perspective of a developer’s or principal’s.
A builder is likely to be concerned about supply issues. A developer is often concerned about their obligations – for example, they may have given undertakings to their financier.
2. Does a developer have to agree to a delay or enacting of a Force Majeure clause?
I would advise developers not to rush into such a situation, as this needs to be carefully considered. The parties should always think about the effects of enacting such a clause.
Common consequences of enacting a force majeure clause can include:
- Suspension of contractual obligations
- Exercising of liability for non-performance or delays
- Termination of contract
- Extension of time
- Re-negotiation of certain terms
Enacting a force majeure clause is not something to enter into lightly, and it’s not usually something a developer should want to enter into as it changes the contractual landscape and could lead to potentially unforeseen consequences.
3. Can the developer rely upon their contract with the builder?
The developer can most certainly rely upon their contract with the builder. A contract is a legally binding agreement, in which both parties have given each other obligations and taken on liabilities.
If a contract does not allow for a force majeure clause, then the builder can only ask for things like extensions of time, etc, that are for reasons covered under the contract. A developer does not have to accept if it isn’t covered within the scope of the construction contract.
4.What remedies are available to the developer?
In the industry, we often hear the phrase, “time is of the essence.” A construction contract allows a period of time for particular work to be done and there is a penalty for the builder outside of that time. For each day that a builder goes overtime without having a valid extension of time (liquidated damages), the developer is entitled to be paid a pre-set amount.
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