‘Standstill agreements’: Addressing relationship conflicts during COVID-19

The COVID-19 pandemic is a disruptive force leading us to contemplate different ways of doing things. One outgrowth of this may be that we may examine "standstill agreements" and how they can be a beneficial tool to avoid catastrophic financial and personal situations.

Standstill agreements are used to suspend or extend limitation periods. This gives parties, whether they be in business relationships, litigants or lovers, additional time to investigate the facts pertaining to their situation and attempt alternative forms of dispute resolution without plunging into possibly irreversible injurious action.

Following the First World War, prominent individuals like the economist John Maynard Keynes proposed a form of standstill agreement between the victorious allies and defeated Germany so that Germany might avoid having to pay economy-crippling reparations. He warned that a failure to provide relief to Germany could lead to anarchy or fascism. He was prescient. The refusal of French leaders and others to embrace this standstill concept led to economic catastrophe in Germany and the rise of Adolf Hitler.

More recently, governments have enacted emergency regulations to suspend residential evictions in their communities. This, too, is a form of a standstill agreement, requiring landlords to temporarily forgo legal action against their tenants if the tenants are not paying rent. One might question the fairness of this type of standstill agreement, but it appears to be premised on the assumption that landlords are better equipped than are their tenants to take a financial hit, at least on a short-term basis.

The American Bar Association recently announced a Model Standstill/Tolling Agreement to address business relations disrupted by the coronavirus. Their model agreement may be used to address other types of situations and relationships.

In the business context, the ABA's model agreement is intended for businesses facing performance problems under contracts. Rather than leaving it to the already-overtaxed legal system to address the numerous business defaults likely to occur during the pandemic, the agreement, if implemented, allows businesses to freeze their commercial obligations while the economy adjusts to the pandemic.

The model agreement identifies "standstill issues" and provides for a "standstill period" during which the party owed performance agrees not to seek certain remedies, and the party owing performance agrees that they will not undertake acts that may ultimately harm the other party. It contemplates that certain obligations, such as for partial payments or for the provision of some goods or services, may continue during the standstill period. It provides suggested remedies if either party breaches the standstill agreement.

Standstill agreements may benefit couples whose relationship has been harmed by the pandemic and who are contemplating a breakup. Rather than making a final irrevocable split, a married couple may agree to attempt counseling. While the counseling and a chance of reconciliation exists, they may agree to suspend marital rights such as the right to accrue additional marital property and support rights.

Couples usually want to at least try to salvage their marriage before ending it all together. For those couples, a standstill agreement helps them attempt to resolve their issues while stabilizing their situation. A standstill agreement may be kept confidential. The agreement often allows each party to address personal and interpersonal issues and develop an action plan.

A standstill agreement may also benefit individuals who are contemplating marriage. Often individuals get married after having established their careers and accumulated wealth on their own. In such cases, the parties may want to have a prenuptial agreement to govern how they will address property and support issues if their marriage fails. To be valid, the parties must make a full disclosure to one another of their finances, including itemizing their assets and liabilities and their income. If the parties are still negotiating the terms of their prenuptial agreement as their wedding date approaches, they may enter into a standstill agreement by which they agree to negotiate in good faith to complete an agreement after they are married. The parties can include in a standstill agreement that until an agreement is signed, or the standstill expires, the provisions of the Family Law Act in relation to property and support rights upon the breakdown of a relationship, do not apply.

Once the marriage has occurred, the parties can resume negotiations and hopefully come to an agreement on all terms without feeling rushed or pressured into signing an agreement prior to marriage.

Assuming they are ultimately successful in arriving at an agreement, the agreement will be a post-nuptial agreement rather than a prenuptial agreement. As such, it will be subject to stricter rules and stricter scrutiny by courts. However, in implementing the standstill agreement approach, the parties created an expectation of how they intend to govern their marital relationship once they are married, and they have committed themselves to continue good faith negotiations following marriage.

While devastating in many ways, the pandemic offer us the opportunity to think constructively about how we may address our business and personal relationships. Considering the many ways in which we may embrace standstill agreements is one such disruptive opportunity. 