Have You Thought About ... Notice Clauses?

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Brownstein Hyatt Farber Schreck

As the COVID-19 pandemic continues, office closures and remote work arrangements are likely to continue for the indefinite future. The notice clause is a seemingly innocuous provision in nearly every contract that deserves heightened attention and scrutiny due to this dramatic change in the location of your business and team members. Notice clauses specify the required method and means for delivery of formal notices under a contract, and may present a trap for the unwary, particularly under the present circumstances. In today’s environment, your office might be closed on a particular business day, you might have a prolonged office closure for an indefinite period, or your office might have significantly reduced staffing and hours. Unless tailored to that reality, the notice provision in most contracts will deem notice to have been received when in fact your business was incapable of receiving it.

Forms of Notice

Physical delivery to an office is not the only way to provide notice in this day and age, yet many (if not most) notice provisions require notice to be delivered to a party’s principal place of business by overnight or express courier (e.g., FedEx), U.S. mail, hand delivery, and/or facsimile in older documents. While some provisions allow notice by email, they might require that notice be confirmed or followed by another means (such as certified mail) before the email notice is effective. 

“Mailbox Rules” and Deemed Delivery

A typical notice provision includes so-called “mailbox” rules, where notice is deemed to be received within a period of time after transmission, such as two days if sent by overnight or express courier or three days if sent by U.S. mail. In most contracts, the mailbox rules regarding deemed receipt specify that notice is only effective during “business days,” which the contract might define as a day that banks are open, or some other criteria. In other contracts, “business day” is not defined. There is a practical, meaningful difference between actually receiving a notice and a notice being deemed received for legal purposes. For example, if Mr. Jones sends legal notice on Monday to Mrs. Smith by U.S. mail and it arrives on Friday, then, in this example, it was actually received on Friday, but the “mailbox rules” might deem it to have been received on Thursday. Due to her company’s COVID-related protocols, Mrs. Smith might not actually receive the notice at all because her office was closed, or she was not in the group of personnel who worked in the office when the mail was delivered on Thursday, or when the notice was deemed to have been received on Friday. 

Is Anybody Home?

Failing to receive timely notice presents practical problems and potential liabilities for your business, including, for example: (1) losing the ability to address your counterparty’s concerns or cure an alleged breach during the contract’s cure period; (2) missing a deadline for responding to a lawsuit or other court filing, resulting in a default judgment; or (3) losing the ability to cure a missed loan payment or performance failure, leading to a default and foreclosure under loan documents or an equipment lease. Even if your office is staffed with reduced hours or less in-person workdays each week, actual receipt of notice may be delayed, putting you at a disadvantage as your team scrambles to make up for lost time because the notice was deemed to have been received days earlier.

Email As a Solution 

Opting for email as a required form of notice is often your best course of action during the ongoing pandemic. Even if your office is currently open full-time, things might change as we head into the Fall as jurisdictions continue to monitor and possibly update stay-at-home orders. If you are negotiating a new contract, then review our recommendations under the “Specific Issues to Consider” heading, below.

If an existing contract does not allow for email notice, or if it allows for email notice as only one of several options, then consider a contract amendment that requires email notice to ensure actual receipt in a timely manner. It would not be sufficient for the parties to agree informally to use email for the time being, because most contracts require that any amendment be in writing and signed by the parties. If you “agree” informally to use email without amending the contract to require it, then the counterparty could still use the office delivery requirements in the contract to provide legal notice that, in theory, you would never see.

If you have a friendly counterparty and are not in a dispute, then it might be easy enough to call or email your counterparty to suggest that you amend the notice provision of the contract to require email notice. This should be a mutually beneficial and welcome change. If, however, you are in a dispute, then the counterparty is perhaps not likely to agree to any amendment, and may use the absence of email notice requirements against you (e.g., by sending notice by a method that you are not likely to receive, or that will likely be received after some period of delay). 

Specific Issues to Consider

When amending a contract’s notice section to require email notice, consider the following:

  • consider creating a notice email address (e.g., legalalerts@AcmeCompany.com) so that emails to that address attract appropriate attention and are not lost in the overflowing inbox of a busy executive;
  • use multiple recipients for each party so that there is a higher likelihood of timely receipt by a team member who is well situated to act promptly;
  • require notice parties to add the email address of all other parties to their “safe senders list” to avoid emails going to spam, junk, or being caught by security systems;
  • and consider requiring a subject line that references that it is a notice per the particular contract (e.g., “Notice per section x of the Services Agreement”).

Changing Contact Details in Existing Agreements

A well-crafted notice provision should allow you to update contact details by notifying your counterparty using the contract’s existing notice requirements and methods. If, however, your contract does not permit email notice, then notices that are intended to change contact information might create a merry-go-round of ineffective communication from a practical standpoint, as you try to notify a party who is not in the office to receive your notice, that you need to change your notice coordinates … because you are not in the office to receive notices.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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