COVID-19 Closing Conundrum…

The impact of the coronavirus (COVID-19) on business relationships is still a huge unknown, and we are all aware of how much uncertainty it has injected into our daily lives. Fortunately, the good people at the Florida Bar and the Florida Association of Realtors had the foresight to consider an event like this when drafting the standard forms that are used in most Florida residential transactions – the “AS IS” Residential Contact for Sale and Purchase, and the Residential Contract for Sale and Purchase. Those forms provide a framework for answering the question that we’ve heard several times over the past few weeks: “Is this contract going to cancel because of coronavirus?”

Each version of the FAR/BAR contracts contains the following two provisions which speak to the issue of cancellation due to coronavirus:

5. EXTENSION OF CLOSING DATE:
(b) If an event constituting “Force Majeure” causes services essential for Closing to be unavailable, including the unavailability of utilities or issuance of hazard, wind, flood or homeowners’ insurance, Closing Date shall be extended as provided in STANDARD G.

18. G. FORCE MAJEURE: Buyer or Seller shall not be required to perform any obligation under this Contract or be liable to each other for damages so long as performance or non-performance of the obligation, or the availability of services, insurance or required approvals essential to Closing, is disrupted, delayed, caused or prevented by Force Majeure. “Force Majeure” means: hurricanes, floods, extreme weather, earthquakes, fire, or other acts of God, unusual transportation delays, or wars, insurrections, or acts of terrorism, which, by exercise of reasonable diligent effort, the non-performing party is unable in whole or in part to prevent or overcome. All time periods, including Closing Date, will be extended a reasonable time up to 7 days after the Force Majeure no longer prevents performance under this Contract, provided, however, if such Force Majeure continues to prevent performance under this Contract more than 30 days beyond Closing Date, then either party may terminate this Contract by delivering written notice to the other and the Deposit shall be refunded to Buyer, thereby releasing Buyer and Seller from all further obligations under this Contract.

That’s a lot to unpack. First, we need to decide whether the coronavirus is an event that is defined in the contracts as a “Force Majeure.” It isn’t specifically listed, but it would almost certainly fall under the catch-all language which states that “other acts of God” will qualify.

However, the existence of a “Force Majeure” event, standing alone, is not sufficient to trigger the provision. Section 5(b) states that a contract extension is only required if the “Force Majeure” event causes services essential for closing to be unavailable, including the unavailability of utilities or issuance of hazard, wind, flood or homeowners’ insurance. So far, that has not occurred (at least in Sarasota and Manatee counties) – closings continue unabated to this day, and those services continue to be available. Section 18.G. is a little bit broader: it allows for extensions of time in the event that performance is “disrupted, delayed, caused or prevented” by a Force Majeure event. It is at least conceivable that this language could be triggered, even while closing services are available – for instance, a buyer could be quarantined, which may be an impediment to a closing. That being said, closings are becoming easier and easier to complete remotely (even from quarantine!), and if the closing is able to be completed using some effort, the Force Majeure provision would likely not allow a party to escape responsibility under the standard contracts. For instance, online notarization of documents has recently been authorized in Florida, allowing closings to occur without an in-person meeting. So, except in some rare cases, if closing services continue to be available it is unlikely that contracts which are written on the standard forms will be subject to the Force Majeure clause, or will be required to be extended.

Of course, this situation seems to be changing on an almost daily basis. So what happens if closing services become unavailable in the future? In that event, Section 18.G. requires that closings be extended for 7 days after the Force Majeure event no longer prevents performance. That section allows the contract to be extended for up to 30 days after the original closing date, and after that period allows either party to terminate the contract without fault. The time periods in this section don’t appear to address the realities of the coronavirus epidemic. If the coronavirus proceeds to the point that the Force Majeure clause is triggered, it is certainly possible that the condition will exist for longer than 30 days. In that event, if parties want to bring certainty to their closing, they will need to amend their agreement to extend the relevant deadlines.

If you have any questions about your contract or the impact of the Force Majeure provision as it pertains to your circumstances, we urge you to reach out to your real estate lawyer.

Sincerely,
Berlin Patten Ebling, PLLC
Article Authored by Daniel C. Guarnieri, Esq. dguarnieri@berlinpatten.com

This communication is not intended to establish an attorney client dguarnieri@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.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

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