A hardship clause is a provision in a contract that provides for the contract to be changed when circumstances have changed and one of the contracted parties is unduly burdened.

What Are Hardship Clauses?

Hardship clauses are included in contracts to help keep the obligations of the listed parties balanced. If circumstances change and one party is now unequally obligated, a hardship clause allows the terms of the contracts to be changed. Hardship clauses are most frequently included in international commerce agreements. Their purpose is to make sure that the contract continues when one party's circumstance have been altered and they are no longer able to meet their contractual obligations.

In terms of a contract, hardship means that the balance between two contracted parties has been altered. For instance, the costs that one party must cover to meet their obligations may have increased. There are several other requirements that must exist for hardship to occur:

  1. The change in circumstances was only revealed after the burdened party entered the contract.
  2. There would have been no way for the burdened party to anticipate this change when entering the contract.
  3. The changes in circumstance cannot be controlled by the burdened party.
  4. The burdened party did not assume the risk of the changes.

Generally, altered circumstances do not eliminate the obligation to fulfill contractual duties. This means that hardship cannot be claimed unless the events that altered the balance between the two parties could be considered fundamental to the contract.

There are several ways that a change in circumstance could be considered fundamental. For example, if one party's costs increase in a substantial way, this can be considered a fundamental change. Usually, the party affected in this circumstance is the one obligated to perform an action instead of making a monetary payment.

The other type of fundamental change that would prove hardship is when one party is no longer receiving the value that they were promised in the contract. For example, if one party hired another to build on a piece of property and a new law prevents building on that property, then the first party would not be receiving value from the second party's performance.

When hardship is claimed because of the loss of value related to performance, this loss must be able to be objectively measured. Your personal opinion that value has decreased is not relevant. If you cannot demonstrate that a decrease in value has taken place, you will not be able to claim hardship.

As you might expect, hardship can only be claimed if the performance promised by the contract has not yet been provided. After a party has performed their duties, they no longer have the ability to claim that an increase in costs or decrease in value has caused them hardship. This clause can only be invoked before contractual obligations have been performed. However, if the fundamental change occurs and the performance is only partially complete, then hardship may be claimed.

Hardship Clause Example

Hardship clauses are sometimes difficult to understand, making it a good idea to check out an example. It is possible, for instance, for cities to include hardship clauses related to taxes. A city could provide a tax exemption based on hardship for citizens who are too old, ill, or impoverished to meet their tax obligations. In many cases, these tax-related hardship exemptions also apply to citizens who experience a change in their active military status.

However, these hardship exemptions usually have requirements that must be met before they apply. For example, the town may require that a person applying for the exemption own and occupy property before a certain point in the fiscal year. The town may also require that the person requesting the exemption be an individual, meaning that businesses are not eligible.

In terms of taxes, hardship clauses will function differently than deferral clauses. For example, if the hardship clause is for property taxes, there will not be a lien placed on the applicant's property, which is usually a requirement for deferral clauses. When the exemption is granted, the taxpayer will be able to defer paying their property taxes for a certain period of time.

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