What Is a Hardship Clause?

A hardship clause is a contractual term that refers to a situation where the parties to a contract may encounter a situation in the course of their contractual relationship that may make it exceedingly hard for either of them to fulfill the terms agreed upon in their contract. In this situation, the hardship clause provides an option for both parties to renegotiate the terms, making the performance of the contract reasonably easier for both parties. One point to note is the fact that a hardship clause is not meant to preclude any party from the performance of the terms of the contract. Rather, the hardship clause simply leaves a sort of wriggle room where the parties to the contract can sit down and draw up an alternative plan.

An example of the application of the hardship clause can be drawn by using an example of two business partners and parties to a contract: Mr. A and Mr. B. In this situation, assume that Mr. A and Mr. B have signed a contract for Mr. A to build a prefabricated building for Mr. B in his company by a certain date and according to a specific design. During the construction and production of Mr. B’s prefabricated building, Mr. A is erroneously given the design of another customer, Mr. C, who has a similar design to Mr. B’s design. Mr. A produces the building Mr. B rejects, because it is not precisely per his specification. In the meanwhile, part of Mr. A’s production plant burns down and he does not have the necessary equipment to produce the exact requirement of Mr. B’s building.

By the application of the hardship clause in the contract between Mr. A and Mr. C, they could renegotiate the contract where Mr. B would choose another plan that Mr. A can produce with the available equipment since he no longer has the capacity or equipment needed to produce the previous design. Mr. A also cannot replace the destroyed equipment, because the company that manufactures the equipment needed to produce Mr. B’s exact design has declared bankruptcy and no longer produces the equipment. In this case, Mr. A would still be expected to produce a prefabricated building for Mr. B since he has other equipment that can perform the best alternative to the design. Still, the two parties would have to work out an alternative that would allow Mr. A to fulfill his obligations as spelled out by the provisions of the hardship clause.