1.Note that all U.S. states, with the exception of Louisiana, which has a civil code, are states of common law. Although Louisiana law is beyond the scope of this customer alert, Sections 1873 and 1878 of the Louisiana Civil Code, which excuse the performance of the contract for certain “fortuitous events,” would likely apply to Louisiana transactions. 3 It should be noted, however, that sometimes events similar to those generally referred to as force majeure events may excuse or mitigate some significant adverse effects or significant adverse changes (depending on how the credit documentation is prepared). Since the type of force majeure serves as an excuse for the performance or fulfillment of certain time-related obligations, the claimed event must result in an actual delay (or inability to perform) in addition to the occurrence of an event that would be included in a definition of force majeure. The occurrence of the event in itself, without delay or impossibility of performance, does not justify any excuse for the performance. The occurrence of the event, associated with an effective delay in performance or the inability to comply with the agreement, would be interpreted as an event of force majeure for which the borrower would have the repair or excused service provided for in the loan agreement. As a general rule, the force majeure clauses (i) excuse the stoppage of work for a period longer than the period authorized by the loan agreement (normally 15 to 30 uninterrupted days, as indicated above) or (ii) the failure to complete the project before the necessary completion or delivery date. Often, construction loan contracts provide for a daily extension of the final completion date of the project for each day of delay actually caused by the force majeure event, usually with a maximum number of days of delay allowed, often 120 or 180 days, so that, in any case, and regardless of the applicable force majeure event, the project must be completed within 120 or 180 days from the set completion date. 7 A pre-negotiation letter is often concluded after the onset of a credit default and before the opening of enforcement proceedings and sets out the framework within which the lender and borrower discuss a credit suspension or change and possibly negotiate to remedy the default.
They generally provide that the talks are voluntary, that the parties may terminate the talks and that the discussions, the resulting negotiations and the exchange of draft documents to remedy the failure are not binding, constitute settlement negotiations and are therefore not permitted in any proceedings between the parties. In addition, some pre-negotiation letters may attempt to confirm loan documents, including guarantees and guarantees, or borrowers or guarantors may waive certain rights or exempt the lender from potential claims of the borrower or guarantors. Most construction credit documents contain certain termination provisions that require the borrower to inform their lender in writing of the status of certain events, including the existence of a force majeure event. In recent weeks, many construction lenders have received force majeure notifications from their borrowers, who have turned to the circumstances of COVID-19 as a basis.. . .