Hardship clause: Overview, definition and example
What is a hardship clause?
A hardship clause in a contract allows for adjustments to the terms of the agreement if unforeseen circumstances make performance of the contract much more difficult or expensive for one party. It is designed to provide a way for the parties to renegotiate the contract in the event of extreme changes in circumstances that go beyond what was originally agreed upon.
Why is a hardship clause important?
A hardship clause is important because it provides a safety net for both parties if unexpected events, such as economic shifts, natural disasters, or new regulations, make it difficult or impossible to meet the original terms of the contract. It helps prevent one party from being unfairly burdened and ensures that the contract remains fair and workable under changed circumstances.
Understanding hardship clause through an example
Imagine a company agrees to provide raw materials to a factory under a contract, with fixed prices and delivery timelines. Halfway through the contract, a sudden economic crisis leads to a sharp rise in material costs, making it impossible for the supplier to fulfill the contract at the agreed-upon price without significant financial loss. If the contract includes a hardship clause, the supplier could invoke the clause to renegotiate the terms or ask for a price adjustment to reflect the new reality.
In another case, a construction company is contracted to build a project, but unexpected regulatory changes require additional compliance measures that increase costs and delay the timeline. A hardship clause might allow the construction company to request an extension or financial adjustment to cover these new expenses.
Example of a hardship clause
Here’s how a hardship clause might look in a contract:
“In the event that the performance of any party under this Agreement becomes excessively difficult or costly due to unforeseen circumstances beyond the control of the affected party, the affected party may request renegotiation of the terms to adjust for such hardship. If the parties cannot reach an agreement within a reasonable period, either party may terminate the Agreement without liability.”
Conclusion
A hardship clause provides flexibility in contracts, ensuring that one party does not face unreasonable difficulty in fulfilling the contract due to unexpected events. By including a hardship clause, businesses can protect themselves against significant risks and ensure that contracts remain fair and viable even in changing circumstances.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.