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Has Your Contract Caught COVID?

An Overview of Emerging COVID-19-Specific M&A Contract Provisions

Anna L. Schroeder
3/12/21

hands signing contract   This week, it will have been a year since I left my office thinking that a two-week work-from-home hiatus would be refreshing, but surely COVID-19 would not shut things down any longer than that! Now that I, like many others, have converted a spare room, kitchen table, or bed (no shame if your pajamas are still on while you are reading this) into a new “home office,” I can honestly say I could not have been more wrong. 

   We saw the same shock and confusion in the interpretation of existing contract provisions. The business community was quick to review its force majeure clauses and consider whether a pandemic would trigger its application. Alternatively, we asked whether performance could be excused due to impossibility or frustration of purpose.  (The Firm has an earlier article regarding force majeure clauses on its site.) 

   But, just as we have adapted to COVID-19 using masks, hand sanitizer, and social distancing, certain contracts are adapting as well. Provisions such as “COVID-19 Measures,” “COVID-19 Actions” and “COVID-19 Responses” are becoming increasingly prevalent in mergers and acquisitions (M&A) transactions. According to data from Bloomberg Law, 243 publicly filed M&A agreements have included COVID-19-specific measures, and a search of Westlaw’s database revealed the same in at least 283 agreements. These new provisions most commonly are being incorporated in M&A agreements as follows: 

   Additionally, some of the above provisions include a “commercially reasonable” or “reasonably determined to be necessary or prudent” standard. These standards impose a duty to act as a reasonable person would under similar circumstances, and, when specifically considering reasonable actions in response to COVID-19, may encompass things like abiding by state shutdown orders or implementing practices to protect employee health and safety. 

   Eastman & Smith will continue to monitor how COVID-19 provisions are included and interpreted in various contracts. Please reach out to Ms. Schroeder or one of our other business attorneys with questions about these provisions and your contracts.

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Disclaimers:

   At the date of publication, the above information was correct. It is quite possible the information above has changed as COVID-19 is a rapidly evolving situation.

   The article in this publication has been prepared by Eastman & Smith Ltd. for informational purposes only and should not be considered legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney/client relationship.