Most people have heard of a force majeure – as a matter of fact, there are over 270 million copies of the popular Risk Analyst title in print worldwide. But what is force majeure, and how does it apply to renewable energy projects and agreements? We’ll tell you more about this complicated matter.
What Is Force Majeure?
Force majeure (French for “major force”) is a commonplace term used in contracts to describe an unexpected event or circumstance that frustrates the plans of the parties to the agreement. It is typically used when one of the parties involved is unable to perform their obligations under the contract – for whatever reason – and this causes substantial damages to the other party.
Most people think of a force majeure event in the context of natural disasters like floods, tsunamis, or hurricanes. These events are usually beyond the direct control of the parties to the contract, and they can (and often do) cause significant damage to property and to the lives of people. However, a force majeure can also arise from something much more mundane: a traffic accident, a fire at the plant, or even a labor dispute at the workplace. In all cases, the unexpected nature of the event makes it difficult for the parties to the contract to plan for the possibility that it could happen.
Why Is It Important To Track Force Majeure In Solar Energy Investments?
If a company or individual enters into a solar energy lease with a developer, they are giving up a lot of control to the company they are leasing the equipment from. Since the company that owns the solar array will be in control of its operation, maintenance, and the power generated, it is essential that the lessee is aware of what rights they are giving up and what obligations they are taking on.
With so much at stake, it is essential that both sides of the agreement are aware of what rights and obligations each party is assuming in the event of a force majeure. One issue that often arises is what happens when the circumstances that caused the force majeure no longer exist. For example, if a hazard (like a hurricane) that caused a force majeure continues to exist, but the plant itself is no longer at risk, what happens to the rights and obligations that were assumed during the force majeure period?
In the case of a solar energy lease, the lessee is usually required to pay for the electricity that is generated by the solar array each month. But if the lessee is no longer in a position to generate electricity, or if they stop paying their lease (for whatever reason), the owner of the solar array will be in a position to either negotiate a new lease or try to collect on the outstanding balance of the existing lease. It is also possible that the owner of the solar array could decide to shut it down and abandon the equipment, in which case the lessee would no longer have any rights or obligations regarding its operation.
How Important Is It To Clearly Define The Force Majeure?
Since force majeure is a frequently invoked term in business contracts, it is important to clearly define what you mean when you use it. A commonly accepted and legally binding usage of this term is as follows:
“Force majeure event” means a sudden and unexpected event, that is outside the control of the affected party, that results in substantial damage or loss to that party. It is agreed that neither party shall be deemed to be in breach of this agreement should a Force Majeure Event occur. In the event that a Force Majeure Event does occur, the affected party shall be entitled to terminate this agreement.”
This definition, accepted by the International Chamber of Commerce, makes it easier for both parties to the agreement to understand what rights and obligations each one is assuming in the event of a force majeure. But keep in mind that this is just a definition and it can still leave a lot of room for interpretation – which can lead to unnecessary disputes and complications if not handled properly. Having a lawyer review the agreement or contract in question can help bring clarity to this matter and prevent any future frustrations or confusion down the line.
When Do You Need To Invoke Force Majeure?
Just because an event or circumstance occurs outside of the control of a party to a contract does not mean that it is necessarily a force majeure event. A risk assessment conducted by a good risk advisor will often include an evaluation of the likelihood and/or gravity of the event, and whether or not the event or circumstance is under the direct control of the party that is invoking force majeure. In many cases, it is simply not possible to predict or control the occurrence of an event that is considered a force majeure, and this is why it is so important to have protection built into the contract.
How Do You Define The Duration Of The Force Majeure?
One question that often arises in the context of a solar energy lease is how long the force majeure will last. Since the lessee will no longer have any control over the operation of the solar array once it is turned off, the lessee will have to ensure that the array is maintained and that payments are made on time. If the lessee does not want to be liable for costs associated with labor and supplies needed to maintain the solar array, they will have to negotiate an extension or a new lease agreement with the solar array’s owner.
It is also possible that the owner of the solar array could decide to shut it down and abandon the equipment, in which case the lessee would no longer have any rights or obligations regarding its operation.
Should One Party Be Liable For The Damages Caused By The Other?
Another important point to raise in the context of a solar energy lease is who is liable for the damages caused by the other party. It is fairly common for one party to a contract to be liable for the damages caused by the other party, but in most cases, it is the party that is completely at fault (i.e., the party that is causing the damages) that is ultimately on the hook for paying for the damages. This could be because they broke a promise or agreement to the other party, or because they acted in a way that was completely unforeseeable by the other party. In any case, the general rule is that the party who is at fault for the damages must pay for them.
However, in the case of a solar energy lease, it is the lessee that is usually at fault for the damages caused by the lessor – the operator of the solar array. The lessee is in a better position to predict the potential damages caused by the lessor, and so they should be held liable for those damages. The lessee is also usually in the better position to ensure that the array is maintained throughout the duration of the agreement, since they have the wherewithal (i.e., they have money) to do so. Consequently, it is the lessee that is usually responsible for paying for the damages associated with a shut down solar array.
In summary, a force majeure is a circumstance or event that frustrates the plans of the parties to a contract. It is agreed by the parties that neither side will be responsible for the damages caused by an event that is beyond the control of that party. However, it is important to clearly define the terms of the agreement so that everyone is on the same page in the case of a force majeure. Once the event is agreed to be a force majeure, it triggers the rights and obligations of the parties to negotiate or amend the agreement in light of the unanticipated circumstance. It is also important to determine who is liable for the damages caused by an event that is within the control of the parties.