BUSINESS STANDSTILL AGREEMENTS AND THE PANDEMIC

Given the current economic uncertainties, entities or individuals in a business relationship may wish to provide in advance for a temporary agreement concerning that relationship while the economy stabilizes. Whether that relationship is one of seller-buyer, creditor-debtor, lender-borrower, landlord–tenant, or something else, an agreement to “stand still” for a specified period of time may be exactly what is needed to either preserve the relationship or, at a minimum, set forth the ground rules as to how the relationship is to be maintained for an interim period of time.

In April 2020, and as a direct result of the impetus of COVID-19, the American Bar Association promulgated a “Model Standstill/Tolling Agreement” which is adaptable to each of the referenced relationships. The principal features of the Agreement include the following:

1. A reference or description of the underlying relationship between the parties.
2. A statement as to what issues between the parties will be subject to a standstill period.
3. The effective date of the standstill period, how long it will last, and whether and how the period can be extended.
4. A statement as to what actions (e.g., the commencement or continued prosecution of a lawsuit) will be prescribed during the standstill period and whether relevant statutes of limitations will be tolled.
5. Whether, in consideration of the standstill period, one or more of the parties will consent to ancillary limitations on how it may perform (for example, no transactions outside of the ordinary course of business or no change in company management).
6. A statement as to reciprocal obligations during the standstill period, such as a requirement that the parties agree to negotiate or mediate the issues in dispute.
7. Whether, and to what extent, the relationship between the parties is to proceed normally and will not be covered by the standstill agreement.
8. A statement as to the remedies for a party’s breach of the standstill agreement.
9. Usual and customary provisions relating to the representation of authority to enter into the standstill agreement, execution of the agreement electronically and/or in counterparts, notice addresses, jurisdiction and venue in the event of a claim arising out of the breach of the standstill agreement and whether or not attorneys’ fees may be awarded to the prevailing party in the event of a breach of the standstill agreement.

Although we cannot endorse the ABA model agreement as a “one size fits all” document, is can serve as a good starting point for a concrete interim basis to preserve an existing business relationship. The varying history, facts and circumstances involved in each such relationship require the assistance of business counsel sensitive to each individual client’s concerns in order to prepare the form of agreement that will advance, and not prejudice, the rights and remedies of his or her client.

Rick Shulman

Contact Rick at rshulman@pricemeese.com should you have questions about this article.