Covid-19 is so far the BIGGEST news of the 21st Century. In the realm of contract obligations in general and real estate transactions in particular, we have never dealt with life and death issues. Now the ability to contract is matched only by the desire of buyers and sellers to perform and is being tested differently than the 2008 financing meltdown!
In my blog just 3 days ago (see https://activerain.com/droplet/5mCc) I discussed how difficult invoking the typical "FORCE MAJEURE" (Acts of God) clause would be even in the panic of Covid-19. Essentially that article dealt with the mere "inconveniences" the panic was causing and focused on the ability or inability to timely perform a party's contract obligations. The blog dealt more with convenience to perform as opposed to the inability to perform.
Now we need to look at this in the rapidly evolving and dizzying timeline of our situation.
I still think that they key no matter what happens, is looking at each case individually, based on "non-permanent" Force Majeure and "permanent" Force Majeure. Look at your contract clause and determine if there is a provision for "non-permanent" Force Majeure. This usually is contained in part of the Force Majeure clause that gives time for the Act of God event to return to normal. Typically this time period is a few days or a week (as would be typical for a hurricane or other type of natural disaster that we have in the past experienced). After the expiration of the time allowed for the Force Majeure event to have past, the parties' obligations again come into effect.
But what if the time period is months - as is likely with Covid-19? A seller - or a buyer - cannot be left in limbo for extended periods of time. Is this, practically speaking, a "permanent" Force Majeure?
The Uniform Commercial Code deals with Force Majeure. The UCC would not necessarily be applicable to a real estate contract, but it gives guidance. The UCC says that if the performance of any part of the contract is delayed, hindered or prevented by reason of any cause or causes beyond the control of the party needing to perform which cannot be overcome by due diligence, performance is "excused" to the extent prevented, hindered or delayed. The UCC says the contract shall during such time will be deemed "suspended". The party using the Force Majeure event as an excuse for non-perfomance must give notice to the other party within a reasonable period of time of the nature and extent of the Force Majeure for the Force Majeure clause to be effective.
The specific language of the Force Majeure clause is important. Does it include "national defense requirements"? or merely hurricane, fire, strikes, labor conditions? or does it include "events which are beyond the seller or buyer's reasonable control"? Looking at the language is key.
What about a STAY IN PLACE governmental order? What if it prevents inspections, surveys, title research, transportation, financial transactions? This is the area we will (this is like a nightmare but you are awake) be likely talking about in the very near future.
Don't go down these paths without legal guidance from a competent real estate lawyer! We are sailing into uncharted territory.
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Copyright 2020 Richard P. Zaretsky
Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.
Richard Zaretsky, Esq., ZARETSKY LAW GROUP. ATTORNEYS AT LAW, 1615 FORUM PLACE, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660. RPZ@ZARETSKYLAW.COM - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide www.ZARETSKYLAW.com.
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