Covid-19: Contract Reviews for Retailers

Since the spread of coronavirus across the UK, those working in the retail sector have been significantly impacted. With the UK Government ordering non-essential retail businesses to close, many shops and other retail businesses are being forced to turn to government aid and, in some cases, close their doors for good.

If you're a retail business owner trying to keep your head above water during this time, there are some key steps you should be taking from a legal perspective to plan for the next few months:

1. Start a contract review

This is a time, more than ever, to undertake a full review of all of your contracts. It's always advisable to know the full extent of the problem, and be able to plan for what is required. Reviewing your contracts can also open up avenues that you might not have been aware were available.

2. Force majeure

In particular, the review should look at ‘force majeure’ clauses, if they exist in your contracts. A force majeure clause excuses a party from their contractual obligations if these are impossible or impractical to perform. This occurs where an event happens that is outside the control of the parties, or something they couldn't have anticipated occurring. For the retail industry in particular, force majeure clauses may become useful if you can no longer pay your rent, or pay your suppliers for stock provided.

Force majeure is not a term that is defined in English law, which makes the actual terms used in each individual contract crucial. Generally, businesses are advised to look at whether the clause itself mentions a virus outbreak or an epidemic/pandemic. If not, the clause may refer to government action or a change of law. It's likely in most cases that these types of clauses will allow parties to stop performing their contracts, due to the coronavirus, although it does depend on the circumstances and the wording of each contract. 

In force majeure clauses that don't reference any of these items, it's unlikely that a party will be excused from performing a contract due to the impacts of Covid-19. Having said that, even if Covid-19 is deemed a force majeure event, it's still the responsibility of the parties to mitigate the impact of what is happening.

In practical terms, this means businesses will be required to take steps to make alternative arrangements to ease the effect on the business (whether this is pushing online sales or making an alternative use of premises).

As a retail business, if you're struggling to pay suppliers or having to suspend performance of your duties under your lease (as you can no longer pay rent or operate a business from the premises), it would be advisable to check your force majeure clauses in relevant contracts to understand where you stand.

If you're still managing to operate (whether online or otherwise) and your suppliers are struggling to continue to supply you, whether due to transportation or factory disruption, be aware that they may also be undertaking a review of their contracts with you to understand their contractual responsibilities.

Force majeure clauses may also impose responsibilities on the parties to take certain steps, such as to meet regularly to work out the best way forward, or may allow a party to terminate the contract if the event continues for a certain period of time. These are matters which you should be aware of and fully understand in your own contractual relationships as we move through these uncertain times.

3. Doctrine of frustration

There's an English legal doctrine known as ‘frustration’, which allows parties within a contract to stop performing their contractual obligations where it's impossible for them to do so in the circumstances. This can be relied on whether or not there's a force majeure clause in the contract.

Now, as a common law principle, frustration is difficult to establish, but it's something to consider in the context of your contracts if you can't in any way perform your contractual duties. It's advisable that you seek legal advice before attempting to rely on frustration as a way out of your contract.

What are the key takeaways?

Retail businesses are significantly exposed during this uncertain time and undertaking a thorough contract review will help give management a more informed view of how to deal with what's to come.

As part of undertaking a contract review, businesses should take a note of:

• Force majeure clauses
• Whether frustration might apply
• Any notice requirements if they need to terminate a contract
• Cancellation fees, if force majeure or frustration can’t be relied on

This is a very unsettling time and, with the situation changing every day, all businesses can do is be fully aware of their responsibilities and liabilities, and implement a plan in order to deal with the consequences. A contract review is a significant part of this. 

About the Author

Barbara Jamieson, is a LawBrief at LawBite, the UK’s leading online legal portal powering a fully SRA regulated and insured UK law firm that specializes in commercial law for business. Barbara Jamieson is qualified in Scotland, New York and California, and has worked at top Scottish law firms Maclay Murray and Spens LLP and Brodies LLP. Barbara also spent three years working in-house at investment management firm Martin Currie, advising on financial services and commercial contracts.