Hurricane season is upon us, which means it is once again time to visit the Force Majeure provision of the FAR/BAR Contract. Over the last couple of years, this section has been reviewed in the context of the pandemic, but it is important to consider how an approaching storm could impact your closing. During a Force Majeure event, a Buyer or Seller are not required to perform any right or obligations under the contract or be liable to each other for damages for the failure to perform such rights or obligations. This limited waiver of responsibility extends to either party’s failure to close and can create an automatic extension to the Contract.
When does the Force Majeure provision kick in?
Day one of a Force Majeure event would be the first day a hurricane impacts someone’s ability to close by creating a condition in which a party cannot perform under the contract because services (or a service), insurance, or approvals essential for Closing are unavailable. While not required by the contract, when practical, it would be prudent to confirm this date in writing to ensure all parties are on notice and can move forward accordingly.
What is essential for Closing?
A service essential for Closing is any service – banks, closing agents, utilities, needed for a closing to occur. Examples include banks being closed so funds cannot be transferred or utility services being unavailable to prevent a walkthrough. Additionally, if insurance is required for closing and cannot be obtained or outstanding loan or association approvals are required and cannot be obtained as a result of the hurricane, closing may be delayed. In our market, currently, many buyers are opting to write contracts without a financing contingency and your “Cash” buyer may not have the same protections if the only delay is related to obtaining insurance.
How long does a Force Majeure last?
Once a Force Majeure event occurs, all contract timeframes are extended a reasonable time up to 7 days after the event no longer prevents performance under the contract. However, if a Force Majeure event lasts more than 30 days, either party may elect to terminate the contract, and the Buyer shall receive a refund of their Deposit. For this reason, it is imperative that there be general agreement on the date on which the Force Majeure event starts because the difference may be the difference between a Buyer or Seller still being able to enforce the contract once the hurricane has passed.
While this provision of the contract offers some protection to the Buyer and Seller in the event of a hurricane, it does not govern any external contracts or agreements the parties may have entered into. For example:
- Buyers may want to ensure that their insurance policies are bound and interest rates are locked early in the process to minimize delays and reduce the risk of needing inspections to be completed a second time.
- Sellers may want to ensure they have adequate storm protection to mitigate damages or the resources required to get the property back in the condition it was on the effective date.
Keep in mind that a delay in the timeframe only comes into effect when the Force Majeure event actually prevents performance. That is to say that the existence of a hurricane alone is not sufficient; the storm needs to actually impact a party from being able to perform their contractual obligations.
As always, should you have questions about this or other real estate matters, we recommend you consult with an experienced real estate attorney to ensure your clients and their property are protected. We hope everyone has a safe hurricane season!