What is force Majeure Clause?

Hi buddy,

You must have heard people talking about ‘what is force majeure’ during the coronavirus lockdown. Well, it can be defined as ‘an effect or event that can be neither controlled nor anticipated. It is a provision of the contract that allocates the loss’ risk in case the performance becomes impractical or impossible, as a result of an event that the parties couldn’t have controlled or anticipated. I hope now you know what does force majeure mean.

From a contractual viewpoint, a force majeure clause gives a temporary reprieve to a party from fulfilling the contractual obligations under a contract when a force majeure event occurs.

A force majeure clause usually mentions certain events or circumstances that would qualify as force majeure events, conditions that would’ve been fulfilled for such force majeure clause for applying to the contract, and the consequences when such force majeure event occurs.

A force majeure clause can generally be found in several contracts like agreements between home buyers and real estate developers, project finance agreements, distribution agreements, supply contracts, power purchase agreements, manufacturing contracts, and more.

It is crucial for businesses as it can relieve the parties from fulfilling their respective obligations which are to be undertaken under the contract and consequential liabilities, during the time that force majeure event continues.

I hope now you know what is force majeure mean and its importance.

COVID 19 has impacted businesses of all scales across the globe. With the ongoing pandemic, I came across a lot of people who are enquiring about force majeure clause meaning. I will explain this in detail.

Force majeure is a french term, which when translated to English language means ‘greater force.’ Force majeure clause is usually an agreement between two entities, such as buyers and sellers, businesses, etc. which states that a party shall not be liable for any failure or delay in the performance of the agreement for the period that such failure or delay is

1.Beyond control of a party,

2.Affects the performance of any of its obligations under this agreement

3.Was unforeseen or provided against

However, the clause is not applicable if the failure or delay results from general economic conditions or other general market effects. 

Since coronavirus hit the globe, all the operations including building and developing real estate projects were on hold. Sighting RERA’s rule that the builder or developer must pay 18% interest for delay in delivery of the project, the real estate lobby was granted some relief by Finance Minister Nirmala Sitharaman on May 13, 2020. However, to claim this benefit, the developers had to perform certain registrations. 

A simple Force Majeure example is given below for better understanding.

A builder has promised to deliver a project by March 31, 2022 as per the contract signed under RERA. But due to lockdown and coronavirus he was unable to continue the construction and development of the project, hence, there is an anticipated delay in delivery. In such a case, as per force majeure clause in real estate, the builder can claim a relief period for up to an year. Thus, he will not be charged any penalty if he does not push the possession deadline beyond March 31, 2023.

I hope you get the gist of the force majeure clause and its applicability in the real estate industry.