Five Tips for Renegotiating Your Contracts Amid COVID-19

Five Tips for Renegotiating Your Contracts Amid COVID-19

Over the past several months, COVID-19 has wreaked havoc on New York and New Jersey businesses. As businesses move forward, it is important to recognize that although “business as usual” may not return for some time, there are steps you can take to salvage deals amid the uncertainty.

In many cases, renegotiating your contracts can protect your legal rights while avoiding the burden and expense of litigation. However, it is imperative that both sides are willing to be flexible in negotiating a new deal that serves the interests of all parties. Below are a few tips:

• Understand the terms of the contract: Both parties should fully understand what their current contract says and what their obligations are under it. It is equally important to identify the provisions that may be difficult to satisfy in light of COVID-19, such as delivery timelines. Of course, one of the most important contract provisions to check is force majeure, which may excuse contract performance under certain circumstances. It is also important to understand under what conditions the parties can terminate the contract and what penalties may be imposed for doing so.
• Conduct due diligence: As with any contract negotiation, it is difficult to assess your negotiating leverage without conducting some research. For instance, how is the other party’s industry being impacted by COVID-19; what risks do they face; how are other businesses in the industry addressing the challenges; and when is the industry expected to recover?
• Come to the table with realistic expectations: COVID-19 has made it even more important to preserve long-standing or mutually valuable relationships, even in the face of a potential contract breach. However, for the contract renegotiation to work, the new agreement must create value for both sides, not just the one that initially sought to amend the contract terms. Accordingly, it is often helpful to think of the process as a problem-solving endeavor to help avoid future disputes rather than simply focusing on who “wins” and “loses” under the terms of the new deal.  
• Address COVID-19 risks: It is important to carefully evaluate the applicability and enforceability of relevant contract provisions in the context of COVID-19. Clauses relating to the inability of a party to meet its contractual obligations are particularly important given the risk of future business closures, quarantines, travel restrictions, and supply-chain disruptions. The parties should also address any notice requirements that must be followed if one party needs to alter, delay or cancel performance of a contractual obligation.
• Prepare for additional bumps in the road: One of the biggest challenges created by COVID-19 is uncertainty, whether it be logistical, economic, or otherwise. While the parties should seek to address all the potential issues they may face down the road in the terms of the contract, the pandemic has proven to be unpredictable. Accordingly, the parties should carefully review any contract provisions regarding dispute resolution. For instance, will the parties be required to mediate or arbitrate future disputes?
• Document any amendments: While COVID-19 has forced negotiations to take place electronically, it is important to have a paper trail. Most importantly, contract amendments should still be in writing and signed by all parties.  The form of the amendment is not usually important as long as both parties sign it. The document can take the form of a standard contract, a letter agreement, or even emails exchanged, if the parties agree to the use of electronic communications.

When facing a potential contract dispute, the best approach is to carefully examine all your legal options. At Scarinci Hollenbeck, our business attorneys are committed to helping clients successfully resolve contract disagreements, while also conserving both time and resources.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Sarah Tornetta, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.