The theory of hardship in contracts: are you still sure of your fixed price?
You may have already heard: the legislator is busy with a thorough reform of the Civil Code. Book by book is being tackled. Recently, the so-called “theory of hardship” has been introduced.
WHAT IS THE THEORY OF HARDSHIP?
The theory of hardship targets unforeseen changes (imprévus) in circumstances after the conclusion of the contract.
The rule is that you must fulfil your obligations under your contract even if the execution has become more difficult or expensive or the value of the counter performance has been reduced.
The theory of hardship is an exception to this rule: a party may ask to renegotiate the contract if the execution of the contract has become excessively difficult due to changed circumstances. You could no longer reasonably be requested to still execute the contract.
RENEGOTIATE THE CONTRACT
If you meet this condition, you may ask to renegotiate. You may ask for an adjustment of the contract, or even push for a complete termination.
It is important to note that during the renegotiation, the parties do have to simply execute the contract as initially envisaged.
If your counterparty refuses to negotiate or if the negotiations fail, you can start proceedings before the authorised court. In that case, the court may decide to adjust or terminate the contract. This is quite exceptional. It gives the court the right not only to terminate the contract, but also to hold the pen and rewrite certain terms and modalities from the contract itself.
WHAT DOES THIS MEAN FOR YOU? SOME EXAMPLES
In the context of a construction contract, this could mean, for example, that a contractor who promises to carry out work at a certain fixed price could invoke the theory of hardship to charge a higher price, even though there is a fixed price in black and white in the contract. The contractor could argue that due to pandemic, war, blockage of major trade routes, etc., there is a sudden increase in material cost and that certain materials are extremely difficult (and therefore more expensive) to obtain, etc.
Previously, the contractor could only invoke force majeure for such cases. However, force majeure means that it is effectively impossible to execute the contract. This is therefore more stricter than the theory of hardship.
Even in the context of a rental contract, the theory of hardship can have far-reaching consequences. Suppose you rent out a retail space for which you receive a monthly fixed rent. Your tenant can use the theory of hardship to demand a rent reduction or even a rent suspension if he or she observes a drastic decline in the number of customers.
In short, are you still sure that the fixed price in your contract remains truly fixed?
WHAT CAN WE DO FOR YOU?
The theory of hardship applies to contracts concluded after 1 January 2023, but it is perfectly possible to sideline the theory of hardship in your contract.
Another possibility is to tighten the conditions under which someone can invoke the theory of hardship. For instance, you can think of a quantitative threshold. For example, you stipulate that there must be a cost increase of at least 20% before it can be considered excessively difficult.
On the other hand, maybe it might be interesting for you to be able to invoke the theory of hardship and you would like more flexible conditions?
Do not hesitate to contact your adviser at Van Havermaet to find out which solution is best suited to your situation.