The coronavirus pandemic has no doubt caused many businesses – particularly smaller and mid-sized businesses, and those in industries more negatively affected – to take unprecedented action just to survive. For many businesses, a nationwide lockdown has caused them to revisit all of their contracts to determine how the pandemic will impact their business agreements, and what happens if they aren’t able to perform as agreed.

Strategies have included cash conservation (to the extent businesses have cash on hand) or defaulting on performance, payment or collection obligations under existing contracts. In response to the measures being taken, it is likely that legal action will follow in the form of collection actions or other lawsuits and bankruptcies; even where payment obligations are secured, it is unlikely that exercising those rights would give meaningful recourse to a secured party in this environment.

In response to these issues as they arise in this particular environment, a standstill agreement might be an appropriate solution. Using a standstill agreement provides a temporary workout between parties can help avoid defaults under contracts and the ensuing consequences, all while preserving existing business relationships, so as to avoid these potentially fatal pitfalls.

To address this need specifically, the Business Law Section of the American Bar Association recently released a form of standstill and tolling agreement (annotated and without annotations) to help businesses under contract by placing a legal “freeze” on certain of the obligations of the parties until the economy stabilizes. The agreement contemplates a period during which parties agree which obligations may continue and which will be paused without the other party seeking certain remedies, and proposes remedies in the event of breach by the contracting parties.

There are risks involved in opening up negotiations on a standstill arrangement, and any such agreement must also be carefully drafted and documented so that it is enforceable. While the ABA’s form of standstill agreement is not intended as a substitute for legal advice, and should be properly tailored to the facts and circumstances of each discrete contractual relationship, a standstill/tolling agreement offers a practical commercial tool to support parties in crafting solutions before breaches of contract arise, even in the face of current uncertainties, and provides greater certainty once the effects of the pandemic have lifted.