What is a rehydration clause?

A rehydration clause, typically found in commercial contracts (especially those involving intellectual property or technology licensing), is a provision designed to prevent the "death" of a contract due to circumstances that make performance temporarily impossible. Instead of the contract being terminated, it's paused until the impediments are removed. Think of it as a "pause" button rather than a "stop" button.

Here's a breakdown of key aspects:

• Purpose: The primary goal is to protect both parties from unforeseen events that temporarily prevent one or both from fulfilling their obligations. These events might include natural disasters, government actions (like export restrictions), unexpected technical difficulties, or even pandemics.

• Triggering Events: The clause will specifically list the events that trigger the rehydration period. This list is crucial and should be tailored to the specific risks involved in the contract. It's not a catch-all for any problem.

• Duration of Suspension: The clause will often specify a timeframe for the suspension of performance. This might be a fixed period or a period tied to the resolution of the triggering event.

• Obligations during Suspension: While performance is suspended, the parties might still have certain obligations, such as keeping records, maintaining equipment, or continuing efforts to overcome the impediment. The clause needs to define these ongoing responsibilities.

• Re-activation of the Contract: The clause defines the process for resuming performance once the impediment is removed. This could involve a simple notification, a joint agreement, or the completion of specific actions.

• Termination Rights: Even with a rehydration clause, there will usually be provisions for termination under specific circumstances. For example, if the impediment persists beyond a reasonable time, or if one party fails to cooperate in resolving the situation, the contract might still be terminated.

Example Scenario:

Imagine a software licensing agreement where the licensee's ability to use the software is disrupted by a widespread cyberattack. A rehydration clause could suspend the licensee's payment obligations and the licensor's support obligations during the period of the attack while providing a process for resuming the agreement once the attack is mitigated and the software is operational again.

In short: A rehydration clause adds flexibility to contracts, offering a pathway to recovery from unexpected setbacks instead of immediate termination, leading to potentially costly litigation or other disputes. However, carefully drafting the clause to define triggering events, suspension periods, and ongoing obligations is critical to avoid ambiguity and disputes. Legal counsel is highly recommended when including such a clause in any contract.