TL;DR: A hardship clause allows a party to request renegotiation of a contract when unforeseen circumstances fundamentally alter the economic equilibrium that existed at formation, making performance drastically more onerous but not impossible. Unlike force majeure, which addresses events that prevent performance altogether, hardship targets situations where performance remains technically feasible but has become so burdensome that enforcing the original terms would be grossly unfair. The concept is well-established in civil law systems and international commercial law (UNIDROIT Principles Articles 6.2.1-6.2.3, ICC Hardship Clause 2020), but faces resistance in common law jurisdictions where the doctrine of frustration is far narrower. Key drafting variables include the definition of the triggering change, the threshold for "fundamental alteration," the renegotiation procedure, the consequences of failed renegotiation (adaptation by a court or arbitrator, termination, or reversion to original terms), and the allocation of risk during the renegotiation period.

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What Is a Hardship Clause?

A hardship clause is a contractual provision that addresses situations where supervening events, beyond the control of the parties and not reasonably foreseeable at the time of contracting, fundamentally alter the balance of obligations under the contract. The affected party does not claim that performance is impossible. Instead, it argues that the cost of performance has increased so dramatically, or the value of the counter-performance has diminished so severely, that requiring strict adherence to the original terms would destroy the economic basis of the deal.

The clause typically creates a two-stage process. First, the affected party must notify the other side that hardship has occurred, provide evidence of the changed circumstances, and request renegotiation. The parties then enter a mandatory negotiation period, during which performance obligations usually continue. Second, if renegotiation fails within a specified timeframe, the clause provides a fallback mechanism: referral to a court or arbitral tribunal for adaptation of the contract, termination on equitable terms, or (in some formulations) automatic termination.

The hardship concept originated in civil law traditions, particularly French law (the doctrine of imprevision, codified in Article 1195 of the reformed French Civil Code in 2016), German law (Storung der Geschaftsgrundlage under Section 313 BGB), and Italian law (eccessiva onerosita under Articles 1467-1469 of the Codice Civile). In international commerce, the UNIDROIT Principles of International Commercial Contracts provide the most widely referenced framework, distinguishing hardship (Article 6.2) from force majeure (Article 7.1.7). The ICC Hardship Clause 2020 offers a ready-made drafting solution for international contracts.

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Why It Matters

Preserves long-term commercial relationships: In contracts spanning years or decades (infrastructure, supply, energy, joint ventures), rigid enforcement of original terms after a seismic market shift can destroy the commercial rationale for both parties. A hardship clause provides a structured mechanism for adjustment rather than forcing the affected party into breach or insolvency.
Addresses the gap between force majeure and pacta sunt servanda: Many disruptive events fall short of making performance impossible but still make it ruinously expensive. Currency collapses, commodity price spikes, sanctions regimes, pandemic-related cost increases, and regulatory changes may not qualify as force majeure, yet enforcing the original price or delivery terms would be unconscionable. Hardship fills this gap.
Reduces litigation risk: Without a hardship clause, the affected party may resort to litigation based on doctrines of frustration, impracticability, or changed circumstances, with unpredictable outcomes. A well-drafted hardship clause channels disputes into a structured renegotiation process, reducing the cost and uncertainty of formal proceedings.
Reflects commercial reality in volatile markets: Global supply chains, geopolitical instability, and climate-related disruptions have made long-term price and performance commitments riskier. Hardship clauses acknowledge that no contract can anticipate every contingency and provide a rational mechanism for adaptation.
Allocation of extraordinary risk: The clause represents a conscious decision about who bears the risk of unforeseen events that fall between normal commercial risk and impossibility. The drafting choices (threshold, triggers, remedies) directly reflect the parties' risk appetite and relative bargaining power.

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Key Elements of a Well-Drafted Hardship Clause

Definition of hardship: Specify the conditions that constitute hardship. The UNIDROIT formulation requires that the events (a) occur or become known after contract formation, (b) could not reasonably have been taken into account at that time, (c) are beyond the control of the disadvantaged party, and (d) the risk was not assumed by the disadvantaged party. The key qualifier is that the events must "fundamentally alter the equilibrium of the contract" by either increasing the cost of performance or decreasing the value of the counter-performance.
Threshold of disruption: Quantify or qualify how severe the impact must be. Some clauses use a percentage threshold (e.g., cost increase exceeding 30-50% of the original contract value). Others use qualitative language such as "renders performance excessively onerous" or "substantially deprives the affected party of the benefit it was entitled to expect." Quantitative thresholds provide certainty; qualitative standards provide flexibility.
Notice and evidence requirements: Require the affected party to give prompt written notice specifying the hardship event, its impact on the contractual equilibrium, and supporting evidence (market data, cost analyses, regulatory changes). Set a deadline for notice (e.g., within 30 days of the party becoming aware of the hardship).
Obligation to continue performance: State explicitly whether the affected party must continue performing during the renegotiation period. Under the UNIDROIT Principles, performance continues (Article 6.2.3(1)). This prevents the hardship claim from being used as a pretext for suspending inconvenient obligations.
Renegotiation period and process: Define the duration of mandatory renegotiation (typically 30 to 90 days), the level of seniority required for negotiators, and any obligation to negotiate in good faith. Some clauses require mediation before escalation to arbitration or court.
Consequences of failed renegotiation: Specify what happens if the parties cannot agree. Options include referral to a court or arbitral tribunal with power to adapt the contract, termination of the contract on terms determined by the tribunal, automatic termination with restitution, or reversion to original terms (no relief). The choice among these options is the single most significant drafting decision in the clause.
Excluded events and assumed risks: Carve out events that the parties have already priced into the contract or that fall within normal commercial risk. Currency fluctuations within a specified band, seasonal price variations, and foreseeable regulatory changes are commonly excluded.
Relationship with force majeure: Clarify how the hardship clause interacts with the force majeure clause. If an event qualifies as both hardship and force majeure, specify which provision takes priority. Typically, if performance is impossible, force majeure applies; if performance is possible but excessively onerous, hardship applies.

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Market Position & Benchmarks

Where Does Your Clause Fall?

Buyer/obligee-favorable: High threshold for hardship (cost increase exceeding 50%), short renegotiation period (30 days), no right to suspend performance, no power for tribunal to adapt the contract (reversion to original terms if renegotiation fails), broad exclusions for assumed risks, and a requirement that the affected party exhaust all mitigation options before invoking hardship.
Market standard: UNIDROIT-based definition of fundamental alteration, moderate threshold (no fixed percentage or a range of 30-40%), 60-day renegotiation period with good faith obligation, continued performance during renegotiation, tribunal empowered to adapt or terminate on equitable terms, and a clear distinction from force majeure.
Seller/obligor-favorable: Low threshold (cost increase exceeding 15-20% or qualitative test of "material" impact), extended renegotiation period (90+ days), right to suspend performance during renegotiation, tribunal empowered to adapt the contract retroactively, narrow exclusions, and the affected party's costs of the hardship event recoverable from the other party.

Market Data

Hardship clauses appear in approximately 60-65% of international commodity supply agreements and long-term energy contracts, but in fewer than 20% of domestic commercial contracts governed by English or New York law.
Following the COVID-19 pandemic and the Ukraine conflict, the inclusion of hardship clauses in cross-border supply and construction contracts increased by an estimated 25-30% between 2020 and 2024.
The ICC Hardship Clause 2020 has been adopted or adapted in approximately 15% of ICC-arbitrated contracts since its release, primarily in construction, infrastructure, and commodity trading.
In civil law jurisdictions (France, Germany, Italy), courts have applied statutory hardship doctrines to adapt contracts even without an express hardship clause, creating a baseline of relief that common law jurisdictions do not provide.
The most commonly used quantitative threshold in bespoke hardship clauses is a 30% cost increase, appearing in roughly 40% of clauses that use a numerical trigger.

Sample Language by Position

Buyer-favorable: "A party may invoke hardship only if it demonstrates that the cost of its performance has increased by more than fifty percent (50%) compared to the cost reasonably anticipated at the date of this Agreement, and that such increase results from events that were unforeseeable, beyond its control, and not attributable to risks expressly or impliedly assumed under this Agreement. The affected party shall continue to perform its obligations in full during any renegotiation period. If the parties fail to reach agreement within thirty (30) days, the original terms shall continue to apply without modification."

Market standard (UNIDROIT-based): "Where the occurrence of events fundamentally alters the equilibrium of this Agreement, either by substantially increasing the cost of a party's performance or by substantially diminishing the value of the performance a party receives, and such events (a) occur or become known after the conclusion of this Agreement, (b) could not reasonably have been taken into account at that time, (c) are beyond the control of the affected party, and (d) the risk of such events was not assumed by the affected party, then the affected party is entitled to request renegotiation of the Agreement. Upon failure of renegotiation within sixty (60) days, either party may refer the matter to [arbitration/court] for adaptation of the Agreement on equitable terms or, if adaptation is not reasonably possible, termination on terms to be determined by the tribunal."

Seller-favorable: "If events beyond the reasonable control of the Seller materially increase the cost of performing the Seller's obligations or materially diminish the value of the Buyer's counter-performance, the Seller may notify the Buyer and request renegotiation. During the renegotiation period, the Seller may suspend performance of the affected obligations upon thirty (30) days' notice. If the parties do not reach agreement within ninety (90) days, either party may request that the tribunal adapt the Agreement to restore the equilibrium that existed at formation, including retroactive adjustment of pricing."

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Example Clause Language

International supply agreement: "If, after the date of this Agreement, events occur that were not foreseen by the parties and that fundamentally alter the equilibrium of this Agreement, placing an excessive burden on one of the parties in the performance of its contractual obligations, that party may invoke hardship. The following shall not constitute hardship: (a) currency fluctuations within a band of plus or minus ten percent (10%) of the exchange rate prevailing at the date of this Agreement; (b) changes in commodity prices that are consistent with historical volatility patterns over the preceding ten (10) years; and (c) changes in law that were publicly proposed or under consultation at the date of this Agreement. The party invoking hardship shall promptly notify the other party in writing, specifying the event and its quantified impact on performance costs. The parties shall negotiate in good faith for a period of sixty (60) days. If no agreement is reached, either party may submit the dispute to arbitration under the ICC Rules, and the arbitral tribunal shall have the power to adapt the Agreement or terminate it on equitable terms."

EPC construction contract: "If the cost of the Contractor's performance increases by more than thirty percent (30%) as a direct result of changes in the prices of Key Materials (as defined in Schedule 7) caused by events beyond the Contractor's reasonable control and not reasonably foreseeable at the Effective Date, the Contractor may request a price adjustment by notice to the Employer, supported by documentary evidence of the cost increase. The Employer shall respond within twenty (20) Business Days. If the parties cannot agree on an adjustment within forty-five (45) days, the matter shall be referred to the Dispute Adjudication Board for a binding interim determination, without prejudice to the right of either party to refer the matter to arbitration."

ICC Hardship Clause 2020 (adapted): "Where the performance of the contract becomes excessively onerous for one of the parties due to an event beyond its reasonable control which it could not reasonably have been expected to have taken into account at the time of the conclusion of the contract, and where that party has been unable to avoid or overcome the event or its consequences, the parties shall, within a reasonable time after the invocation of this clause, negotiate alternative contractual terms which reasonably allow for the consequences of the event. If the parties fail to agree on alternative contractual terms, the party invoking this clause is entitled to termination of the contract."

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Common Contract Types

International commodity supply agreements. Long-term contracts for oil, gas, metals, and agricultural products frequently include hardship provisions addressing price volatility, trade sanctions, and export restrictions.
EPC and construction contracts. Hardship clauses address material price escalation, labor cost increases, and regulatory changes that affect the cost of construction over multi-year project timelines.
Energy and power purchase agreements. Long-duration contracts (10-25 years) for electricity, LNG, or renewable energy commonly include price review or hardship mechanisms to address market evolution.
Joint venture and shareholders' agreements. Partners may invoke hardship when changes in regulatory, tax, or market conditions fundamentally alter the economic assumptions underlying the venture.
Infrastructure concession and PPP agreements. Concessions spanning 20-30 years routinely include material adverse government action (MAGA) and change-in-law provisions that function as specialized hardship mechanisms.
Long-term distribution and franchise agreements. Distributors and franchisees may seek renegotiation when market conditions, tariffs, or regulatory requirements make continued performance under original terms commercially unviable.
International sale of goods contracts. Cross-border sales subject to the CISG or governed by laws incorporating hardship principles may include express hardship clauses to supplement or replace the statutory default.

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Negotiation Playbook

Key Drafting Notes

Distinguish clearly from force majeure: The most common drafting error is conflating hardship with force majeure. Hardship addresses performance that is possible but excessively onerous; force majeure addresses performance that is prevented or rendered impossible. If both clauses use similar triggering language, disputes will arise over which clause governs. Use the UNIDROIT framework as a reference: performance must continue under hardship (unlike force majeure, which suspends or excuses performance).
Specify the remedy for failed renegotiation with precision: The most heavily negotiated element is what happens when the parties cannot agree. If the clause is silent, many jurisdictions will treat it as an "agreement to agree" and refuse to enforce it. Expressly grant the tribunal the power to adapt the contract, specify the principles the tribunal should apply (restoration of equilibrium, fair allocation of burden), and address whether adaptation can be retroactive.
Consider whether common law governs: If the contract is governed by English or New York law, the court will not imply a hardship obligation. The doctrine of frustration (England) or impracticability (UCC Section 2-615, Restatement Section 261) is far narrower than civil law hardship and does not authorize adaptation. If the parties want hardship relief under a common law governing law, they must include an express and detailed hardship clause; there is no safety net.
Address interim pricing: During renegotiation, should the original price apply, a provisional adjusted price apply, or payments be escrowed? Silence on this point creates cash flow uncertainty and may incentivize delay by the party benefiting from the status quo.
Include a sunset or reset provision: If hardship is successfully invoked and the contract is adapted, specify whether the adapted terms become the new baseline for future hardship claims or whether the original terms remain the reference point.

Common Pitfalls

Unenforceable "agreement to agree": A clause that merely requires renegotiation without specifying consequences of failure may be held unenforceable in common law jurisdictions. English courts have consistently refused to enforce agreements to negotiate in good faith (Walford v Miles [1992]). Include a binding fallback mechanism (arbitral adaptation or termination).
Threshold too low or too high: A threshold of 10-15% may be invoked opportunistically by a party experiencing normal market risk. A threshold of 60-70% may never be triggered, rendering the clause illusory. Benchmark against industry norms and the volatility history of the relevant market.
No carve-out for assumed risks: If the seller has already priced commodity risk into the contract through a premium or hedging cost, the hardship clause should not provide a second bite at the same risk. Exclude risks that the parties have expressly allocated through pricing, hedging obligations, or risk-sharing mechanisms elsewhere in the contract.
Ignoring the interaction with price adjustment clauses: Many long-term contracts include indexation or price escalation clauses. If the hardship clause overlaps with these mechanisms, the affected party may claim hardship for price increases that the escalation clause was designed to address. Clarify that hardship applies only to changes not captured by the escalation mechanism.
Failure to specify governing principles for adaptation: If the tribunal is empowered to adapt the contract, what principles should it apply? Should it restore the original equilibrium, split the burden equally, or apply some other standard? Without guidance, different tribunals will reach vastly different results, creating unpredictability.

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Jurisdiction Notes

Common law (England, United States, Australia): Common law systems are traditionally hostile to hardship relief. English law recognizes only the narrow doctrine of frustration, which requires that performance become impossible, illegal, or radically different from what was contemplated, and the consequence is automatic discharge of the contract (not adaptation). The leading case, Davis Contractors Ltd v Fareham UDC [1956], confirms that mere increase in expense is not frustration. US law is marginally more flexible through UCC Section 2-615 (impracticability for sale of goods) and the Restatement (Second) of Contracts Section 261, but courts rarely grant relief for price increases alone (Mineral Park Land Co v Howard [1916] is an outlier). In all common law jurisdictions, an express and well-drafted hardship clause is the only reliable path to relief.

France: Article 1195 of the Code civil (introduced by the 2016 reform, effective October 2016) codifies imprevision for all contracts. If a change of circumstances unforeseeable at contract formation renders performance excessively onerous for a party that had not assumed the risk, that party may request renegotiation. If renegotiation fails, the parties may agree to terminate or ask the court to adapt the contract. The provision is a default rule and can be excluded by contract, which many sophisticated parties do in favor of bespoke hardship clauses.

Germany: Section 313 BGB (Storung der Geschaftsgrundlage) allows adaptation of the contract if circumstances that formed the basis of the contract have materially changed after its conclusion, and the parties would not have entered the contract (or would have entered it with different terms) had they foreseen the change. The court may adapt the contract or, if adaptation is not possible or not reasonable, terminate it. German courts apply the doctrine cautiously and require a high threshold of disruption.

International arbitration: The UNIDROIT Principles (Articles 6.2.1-6.2.3) provide the most widely cited international framework. Under Article 6.2.3, if the parties fail to reach agreement within a reasonable time, either party may resort to the tribunal, which may (a) terminate the contract at a date and on terms to be fixed, or (b) adapt the contract with a view to restoring its equilibrium. ICC tribunals have applied hardship principles even absent an express clause, drawing on the UNIDROIT Principles, the lex mercatoria, or the applicable national law. The ICC Hardship Clause 2020 is the recommended model clause for international contracts.

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Related Clauses

Force Majeure - Addresses events that prevent performance entirely, whereas hardship addresses performance that is possible but excessively onerous
Price Adjustment Clause - Provides automatic or formulaic price adjustments and may reduce the need for hardship relief
Material Adverse Change - A related concept in M&A and finance that may trigger renegotiation or termination rights
Termination for Convenience - An alternative exit right that does not require demonstration of hardship
Governing Law - The choice of governing law determines whether background hardship doctrines supplement the contractual clause
Change of Control - Corporate changes may interact with hardship triggers in joint venture and partnership contexts
Indemnification - May apply to losses arising from the hardship event during the renegotiation period

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This glossary entry is provided for informational and educational purposes only. It does not constitute legal advice, and no attorney-client relationship is formed by reading this content. Hardship clauses involve complex questions of contract law, conflict of laws, and international arbitration that vary significantly by jurisdiction. The enforceability and interpretation of hardship provisions depend on the governing law, the specific contractual language, and the factual circumstances. Practitioners should pay particular attention to the distinction between hardship and force majeure under the applicable law, the enforceability of agreements to negotiate or adapt in the relevant jurisdiction, and the interaction between contractual hardship clauses and statutory hardship doctrines. Consult qualified legal counsel before drafting, negotiating, or invoking hardship provisions.