03/23/2020
COVID-19 AND FORCE MAJEURE
Typically, our legal system permits the parties to a contract to allocate risks as they wish. One example of allocating risk between parties is in the “force majeure” clause commonly found in contracts.
The “AS IS” FAR/BAR purchase contract (the most frequently used residential real estate contract in West Central Florida) contains a force majeure clause which reads as follows:
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.
At the outset, it is important to note that the occurrence of “an act of God” or some other enumerated unforeseeable event, on its own does not excuse performance of a contract. The question is whether the event is preventing or delaying a party’s performance. The most common illustration of this in Florida, is when the geographic location of a hurricane can prevent the issuance of a homeowner’s policy.
With the current COVID-19 crisis unfolding, will courts consider excusing a party’s performance based on the force majeure clause in the FAR/BAR contract? There are two primary avenues to create contract law in the American legal system, statutes and case law. The current situation is so recent there have not been any appellate cases directly related to COVID-19 but certainly many will be filed and decided over the next few years. What if the government quarantines all citizens for an extended time period? In that case, there are other contract defenses to consider as well, such as the doctrine of impossibility or impracticability. Certainly, supervening governmental action that would make performance illegal or cause a party harm (such as contracting a fatal illness) would provide an excuse for non-performance.
Consult a real estate attorney if you have questions about the impact of COVID-19 on a real estate purchase contract or whether or not it is appropriate to use the recently written new COVID-19 Extension Addendum.
