Question
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27 March 2020

Working together in the time of COVID-19

Sale, Purchase, Mortgage, Lease
Federal

Asked

Termination of agreement - Events out of the control of the parties  

My client is party to a recently signed agreement for use of a co-working space for six months at an agreed monthly fee. On signing he paid one month in advance plus a bond equivalent to one month’s fee. In view of the Coronavirus situation he wants to terminate and get the bond back. There is no ‘force majeure’ or similar clause.

Is there any legal principle he can rely on to terminate and get his bond back?

Answered

Thank you for the question.

The common law on frustration of contract may support termination on the basis that the virus effectively prevents the client from attending the premises and obtaining the benefit of the agreement. However, if the other party disputes that the agreement has been frustrated and rejects the termination, then it would be a matter for evidence as to the circumstances. Before purporting to terminate the client should make reasonable endeavours to comply with the agreement. This might mean handwashing, wearing a mask, physical distancing from others on the premises, conducting meetings online and so on. If despite such endeavours the arrangement is untenable, then the client might choose to terminate.

In that event, while it seems unlikely the other party would seek to enforce the agreement in court, the only way to obtain repayment of the bond, if it is withheld, would be for the client to commence proceedings. That would not be commercially viable, especially in the current circumstances.

Before any purported termination, a discussion should be had with the other party to see whether a mutually acceptable arrangement can be agreed upon. A rental holiday with a similar extension to the term, for example, might resolve the issue. Likewise, an agreement to accept return of only half the bond may be acceptable to the other party.

Common sense should prevail here rather than legal technicality.

Regards

Mentor