By Jonathan C. Lipson (Temple University Beasley School of Law), Norman M. Powell (Young Conaway Stargatt & Taylor, LLP)
As we write, the COVID-19 pandemic is having a profound, and profoundly unpredictable, effect on the economy. We profess no knowledge as to what lies ahead, or the timetable on which it will unfold. Indeed, this unknowing is precisely what led us to produce a model standstill and tolling agreement which you can access here in an annotated version and here in a version without annotations.
The current uncertainty will lead businesses to conserve cash if they have it or to miss scheduled rent or other payments if they don’t, resulting in what could be massive cascades of defaults. Some, perhaps many, will be tempted to take legal action, whether in the form of collection suits, bankruptcy or a combination.
We believe that negotiated resolutions are in most cases preferable to those that are litigated. At the same time, we believe it is particularly unlikely that parties will divine, let alone agree upon, optimal resolutions until they can look to the future with greater certainty.
We’ve prepared a model standstill and tolling agreement that is intended to be a template for businesses facing problems of performance under contracts, including payment or collection, which may soon be overwhelming to the parties, and to the legal system. It provides a balanced way for businesses to place a legal “freeze” on their commercial relationship while the economy stabilizes. This model agreement is, needless to say, neither intended as nor a substitute for legal advice. All users are encouraged to retain counsel when possible.
The full article is available here.