Coronavirus (COVID-19): Is your closing at risk?

The team at Berlin Patten Ebling, PLLC is extremely sensitive to the impacts of the coronavirus (COVID-19). The effects of COVID-19 have prevented or delayed performance across virtually all sectors. Fortunately, we have yet to see very little impact to the local real estate industry and we are still seeing robust market activity, great attendance at open houses and property showings.

However, we have started to receive calls from brokers, realtors and clients with respect to how their contractual position might be affected by COVID-19. This is a tough one. The standard force majeure provision does provide an excuse for a party’s non-performance of its contractual obligations as a result of an extraordinary event or circumstance beyond the control of the parties. COVID-19 is certainly an extraordinary event and beyond anyone’s control. But the standard force majeure provision was intended to address situations where closing was difficult, if not impossible to consummate. The threat of COVID-19 may not fall into that category. And while the FAR/BAR contract (the contract we find most of our readers use with respect to residential transactions) provides for an automatic extension of the closing date if an event constituting “Force Majure” causes services essential for closing to be unavailable, closing services are readily available and we expect that to continue to be the case.

While an argument could be made that the standard force majeure provision should apply, it is just not as clear as we would like it to be (and we are certain the authors of the contract did not contemplate a pandemic). So if you want to try to address the issue of closing related delays due to COVID-19 (and not rely upon general force majeure language), the following language (or some variation thereof) could be considered:

CLOSING DATE EXTENSION: “The parties acknowledge and agree that in the event that either party to this Contract, or any authorized signatory of a party to this Contract is unable to consummate their respective obligations hereunder due to (a) a positive test for COVID-19; or (b) a party being Isolated (as hereinafter defined) due to COVID-19 (an “Unavailable Party”), then the Closing Date hereunder shall be automatically extended for a period of time equal to _______ business days following the earlier to occur of the following, (a) the date that the Unavailable Party has received medical clearance to resume normal activities (or has in fact resumed normal activities), or (b) the date that the Unavailable Party is no longer being Isolated (each event shall be considered “Health Clearance”). In each instance, as applicable, the Unavailable Party shall use their best efforts to deliver prompt written notice to the other parties of the occurrence of Health Clearance, which delivery shall not be unreasonably delayed. For all purposes herein, Isolated shall mean that an individual is restricted to a single location and has eliminated all non-essential non-family Contact. If Health Clearance for any and all impacted parties has not occurred by _______________(the “Outside Date”) then this Agreement shall automatically terminate and the Buyer’s Deposit(s) shall be refunded to Buyer, thereby releasing Buyer and Seller from all further obligations under this Contract.”

For additional advice on how your contract might be affected by the COVID-19, please Contact your local real estate attorney.

Sincerely,
Berlin Patten Ebling, PLLC
Article Authored by William C. McComb , Esq. wmccomb@berlinpatten.com

This communication is not intended to establish an attorney client wmccomb@berlinpatten.com and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.