Hurricanes, earthquakes, flooding, and tornadoes are some of the hardest things to hit small businesses. So, how do you prepare your fitness business for natural disasters?
In March of 2020, tornadoes ripped through Tennessee killing 22 people. Among the 140 buildings damaged was CrossFit Hermitage.
The statistics from the Small Business Administration suggest that one-third of business affected by natural disasters never reopen. Luckily for CrossFit Hermitage, they were able to, but it proves that prevention is far more preferable that trying to rectify a bad situation after a natural disaster.
Prepare a plan
The first step to protect your fitness business from a natural disaster is to create disaster preparedness plan that reflects the risks likely to impact you. Your natural disaster preparedness plan should include:
- Identify vulnerabilities in your business and seek to mitigate risks,
- Review insurance coverage – do you have flood, wind, or other disaster damage coverage?,
- Create evacuation plans for your personnel and develop evacuation procedures,
- Implementation document and data backup,
- Consider uninterruptible power supply system and surge protectors,
- Organize contact lists and disaster checklists,
- Designate a meeting place outside of the building,
- Test the preparedness, response and recovery plans,
- Share information about your disaster response plan to employees and relevant clients,
- Take charge during an emergency,
- Prepare to protect your business property,
- Assess and document losses,
- Aid with local recovery efforts.
Force Majeure and Commercial Impracticability
Wait, what? More legal terms!
A Force Majeure clause is something to consider including in your contracts if there is a reasonable risk of a national disaster impacting your ability to fulfill your responsibilities under a service contract. “Force majeure” events are, by definition, beyond the parties’ control.
They are often listed non-exclusively in the force majeure clause. Force majeure events typically include:
- acts of war or terrorism,
- civil or military disturbances,
- and nuclear or natural catastrophes or acts of God. Natural disasters typically fall under the “acts of God,” portion.
When triggered, the force majure clause:
- May suspend contractual obligations;
- The period to fulfill obligations may be extended for both parties; or,
- May allow the contract to be cancellable either immediately, or after the completion of a suspension period.
Example Force Majeure Clauses
Please note – these are only for reference – always check with your local attorney.
“Neither Party shall lose any rights hereunder or be liable to the other Party for damages or losses on account of failure of performance by the defaulting Party if the failure is occasioned by government action, war, terrorism, fire, explosion, flood, strike, lockout, embargo, act of God, or any other cause beyond the control and without the fault or negligence of the defaulting Party, provided that the Party claiming force majeure has exerted all reasonable efforts to avoid or remedy such force majeure; provided, however, that in no event shall a Party be required to settle any labor dispute or disturbance. Such excuse shall continue as long as the condition preventing the performance continues. Upon cessation of such condition, the affected Party shall promptly resume performance hereunder. Each Party agrees to give the other Party prompt written notice of the occurrence of any such condition, the nature thereof, and the extent to which the affected Party will be unable to perform its obligations hereunder. Each Party further agrees to use all reasonable efforts to correct the condition as quickly as possible and to give the other Party prompt written notice when it is again fully able to perform its obligations.”
“No Party to this Agreement shall be liable for failure or delay of performance of any of its obligations hereunder if such failure or delay is due to causes beyond its reasonable control including, without limitation, natural disasters, fires, earthquake or storm, strikes, failures of public utilities or common carriers, acts of war, or intervention, acts restraints or regulations of any governmental authority, including compliance with any order of any governmental considerations; provided that any such delay or failure shall be remedied by such Party as soon as possible using commercially reasonable efforts after removal of the cause of such failure. A Party suffering such delay or which expects to suffer such delay shall promptly notify the other Party in writing of the cause and expected duration of such delay. In the event a delay lasts or is expected to last more than thirty (30) days, then either Party shall have the option to terminate this Agreement upon written notice.”
If your contract contains a force majeure clause, that clause will govern the rights and responsibilities of the parties. If your contract does not have a force majeure clause (or the clause is not effective), the Uniform Commercial Code’s (UCC) instructions regarding commercial impracticability will apply.
What is Commercial Impracticability under the UCC?
Commercial impracticability is defined as “performance as agreed has been made impracticable by the occurrence of a contingency, the nonoccurrence of which was a basic assumption on which the contract was made.” (UCC 2-615)
Increased costs to the seller, even if not expected, are usually not enough to establish commercial impracticability. Increased costs do not excuse performance under the UCC. If the seller (you) can perform, the courts have generally held that the seller must deliver on their side of the contract. This does not mean, however, that a court would require a gym owner to expend the costs to rebuild a completely destroyed facility.
Contracts that require goods be produced from a specific facility, or an exclusive location, may qualify to excuse performance under UCC 2-615 if there is destruction of such location
UCC 2-615 will not excuse performance unless the seller has employed “all due measures” to attempt to deliver on the contract. Moreover, a seller cannot create or contribute to the event that causes the event that makes performance commercially impracticable. Generally, UCC 2-615 only excuses the seller’s obligations. Some situations suggest that a purchaser might have relief, but this is not usual. A force majeure clause may protect both buyer and seller.
Whoa, that was a lot of legal talk!
Which is why you should have an attorney help you draft your contracts because they will walk you through this part if necessary.
Natural disaster preparedness requires a multi-faceted approach. These include:
- Contractual clauses,
- A disaster plan,
- Awareness of other legal protections and remedies under UCC -615.
Consider reviewing all of your contracts to ensure they reflect the risks and needs of your business. See our post on Fitness Facility Risk Management Basics to learn more about how to keep your business safe.