“Reasonable Efforts”? As Defined by whom?

“REASONABLE EFFORTS” AS DEFINED BY WHOM-

Parties to a contract will often use the term “Reasonable Efforts” in contracts where the person doesn’t want to take on strict liability for non-performance to make sure something gets done, but has the intention in complying as long as something out of his/her control doesn’t happen.

For example in a lease agreement the Landlord agree to the following term:
“…Landlord will make reasonable efforts to fill the vacancy so as to mitigate damages if Tenant breaches said lease..”

In this instance Landlord is stating that he/she will make reasonable efforts to fill the empty rental so that the breaching tenant is not responsible for the remaining lease payments. The problem is that Tenant and Landlord will most likely have differing ideas as to what this “reasonable efforts” means especially if the vacancy isn’t filled before long.

The Core Definition of Reasonable Efforts is:

“means, with respect to give an obligation, the efforts that a reasonable person in [the promisor’s] position would use to comply with that obligation as promptly as possible.”1

The core definition is a little less vague, but not by much. “Reasonable Efforts” clauses should thus be further defined such that the group that is being compared is identified or even so that the customary practice of industry standard is identified. Rendering the above definition to look something like,

“means, with respect to a given obligation, the efforts that a reasonable person in the property management industry would use to comply with that obligation as promptly as possible [or within the normal time frame that they would comply with that obligation].”

The whole purpose of using a “reasonable efforts” provision is to make sure that the person with the obligation does not have to take measures that are not in proportion to the good he is receiving for taking those efforts. In order to achieve that limited obligation, the promisor can include some “carve-outs” which would exclude specific actions that the promisor will not take. These “carve-outs” should be very specific such as

  • spending more than $100
  • delaying or interrupting current business to comply with efforts
  • taking any action that would violate a law/ordinance
  • changing the business model or practice to accommodate compliance

Another way is to include efforts that shall be taken rather than list those that will not be taken. These types of actions might look like:

  • posting vacancy at office
  • posting vacancy on website and/or public posting forum ie Craigslist
  • putting an ad in the local newspaper

On its face, “reasonable efforts” seems to be a good phrase that captures the idea that the promisor won’t hinder or sit on an obligation, but an effective use of the “reasonable efforts” term should be further defined to eliminate ambiguity. The ambiguity is exacerbated in the eyes of the promise when he/she is having suffer a negative consequence of the promisor’s failure to comply.

1 Kenneth A. Adams, A Manual of Style for Contract Drafting 169 (2013).
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