COVID 19 - FORCE MAJEURE TO CANCEL CONTRACT

By
Real Estate Attorney with THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY
https://activerain.com/droplet/5mCc

Our phone has been active this week with an important question regarding real estate contracts.  Buyers are asking if they can cancel their contract based on COVID 19 being an event of "Force Majeure". 

Force Majeure excuses a Buyer or Seller in a real estate contract from performing any obligation in the contract or to be liable one to the other for damages so long as performance or non-performance of the obligation, of the availability of services, insurance or required approvals essential to the closing, is disrupted, delayed, caused or prevented by Force Majeure. 

Force Majeure is defined in the Standards for Real Estate Transactions of the Florida Bar / Florida Realtors contract form as, 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.

I looked at several more Force Majeure clauses in other Florida forms and they all are pretty much similar.  None I found include "epidemic" or "pandemic".

What one must do to examine the applicability of the Force Majeure clause is to see if any of the material events necessary to perform a party's obligations is prevented as a result of the "Act of God".

In Florida, attendance at the closing in person is no longer required.  Online notary services became available in Florida on January 1 2020.  We have closed transactions with buyers or sellers all around the world, as well as just a few hours away.  So transportation disruption is probably no longer a supportable Force Majeure event.  Mandatory quarantines and isolation may meet the definition, but mere quarantine would not be enough as it must be such that the ability to perform is disrupted or delayed.  There must be a reasonable ability to perform which ability is removed or thwarted on the part of the party being required to perform.  We just closed a purchase and sale with one party unable to travel from Turkey.

Certainly, the virus alone is not a Force Majeure obstacle.  However are curfews, or disruption to financial markets a bona fide reason?  Since in person closings are not required (I have never seen a residential contract that required in person attendance at closing), that too should not be a reason.  What about the inability to gather to do a "walk-thru" inspection because of government restrictions on travel or meetings?

Someone will try to call the restrictions on our population a Force Majeure.  The question is whether the closing does not occur because of impossibility or because of impracticality.

>>>>>> UPDATED AT REAL LIFE EXAMPLE <<<<<<<

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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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Ambassador
4,103,510
Kathy Streib
Room Service Home Staging - Delray Beach, FL
Home Stager - Palm Beach County,FL -561-914-6224

Hi Richard- You explained it well. I'm curious or perhaps I didn't understand...if your inspector and you cannot attend the inspection, does that qualify as a force majeure?

Mar 16, 2020 08:26 PM #1
Rainmaker
285,185
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Hi Kathy -  That is precisely one of the issues that could happen.  So an inspection is not an obligation to be performed.  It's a right that can be exercised.  My thought is if the inspection cannot occur, the parties either need to agree upon an inspection or the buyer can unilaterally terminate the contract if it is an AS-IS contract.  If it is a due diligence with seller obigation to repair contract, then there must be an inability to inspect because of the Act of God (or act of government).  In that second example, the Force Majeure clause would be used.  In the first example the right to terminate in the due diligence clause would be used, because the inpection is voluntary and not a material part of the contract since it allows cancellation for any reason - not merely the findings of an inspector.

At least that is my take on the matter.......... 

Mar 16, 2020 08:33 PM #2
Ambassador
4,103,510
Kathy Streib
Room Service Home Staging - Delray Beach, FL
Home Stager - Palm Beach County,FL -561-914-6224

Thanks, Richard. Your answer makes sense to me. I wonder if you guys will see any of this?

Mar 17, 2020 05:16 PM #3
Anonymous
Chris Marot

Richard, thank you very much for post as it was helpful. I was looking to try to get out of a real estate purchase as I believe the market is going to get extremely soft. I was hoping to use the "Force Majeure" clause as my argument. I am out of the inspection period and will have to close on Thursday. In sum from what I read, Covid 19 pandemic is not considered force majeure in Florida.

Mar 21, 2020 06:59 AM #4
Rainmaker
285,185
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Chris
See my later articles on this very fluid issue. By Thursday it could be deemed a war (it already essentially is) but it still comes down to being prevented from performing.

Mar 21, 2020 09:27 AM #5
Ambassador
4,103,510
Kathy Streib
Room Service Home Staging - Delray Beach, FL
Home Stager - Palm Beach County,FL -561-914-6224

Mar 21, 2020 06:40 PM #6
Ambassador
1,982,221
Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

Very interesting discussion and as you mention, one that may continue to evolve along with the ever increasing list of closures. 

Mar 22, 2020 08:05 AM #7
Rainmaker
285,185
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Thank you EcoBroker and JD!  Stay healthy

Mar 22, 2020 08:11 AM #8
Rainmaker
856,870
Nick Vandekar, 610-203-4543
Long & Foster Real Estate Inc 610-225-7400 - Devon, PA
Tredyffrin Easttown Realtor, Philly Main Line

Our title company is working hard to provide ways that clients can settle on houses in the pipeline. Interesting times to be sure.

Mar 22, 2020 11:09 AM #9
Rainmaker
1,340,995
Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi Richard Zaretsky,

I have not heard that term in AZ but we have had several homes come back on the market.  I figure buyers who were planning on using Stock funds no longer have the funds they need to purchase. 

Mar 22, 2020 11:53 AM #10
Rainmaker
3,899,264
Dorie Dillard CRS GRI ABR
Coldwell Banker United Realtors® ~ 512.750.6899 - Austin, TX
Serving Buyers & Sellers in NW Austin Real Estate

Good evening Richard Zaretsky ,

I'm glad that Kathy Streib featured your post in her "Ah-ha" moments for the week. Interesting discussion. Every state is different so I think we will see a constant evolving of the interpretation of the contract. We have for years done closing with mobile notaries and now some are on line with a Mobile notary!

Mar 22, 2020 04:17 PM #11
Rainmaker
662,636
Debra Leisek
Bay Realty,Inc Homer Alaska - Homer, AK

Each state has its own laws. I have never heard of this Force Majeure

Time will tell the story of how this all ends up.... 

 

Mar 23, 2020 12:25 AM #12
Ambassador
4,167,773
Jeff Dowler, CRS
eXp Realty of California - Carlsbad, CA
The Southern California Relocation Dude

Thanks for the education, Richard. The coronavirus is clearly testing many situations in the home buying and selling process. No doubt the state Realtor Associations legal hotlines, and real estate attorneys, are pretty darn busy right now.

Jeff

Mar 23, 2020 02:50 PM #13
Rainer
491,409
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

The time to buy IMO is now, so, I can't imagine the fear of doom and gloom actually occurring so that buyers would want to cancel or postpone owning real estate, don't you?

Mar 25, 2020 07:30 PM #14
Rainmaker
563,092
Mary Hutchison, SRES, ABR
Better Homes and Gardens Real Estate-Kansas City Homes - Kansas City, MO
Experienced Agent in Kansas City Metro area

Unfortunately I am seeing many homes that were undercontract go back on the market--due to cold feet or job loss.  Have had buyers decide to wait until a purchase as well

Mar 26, 2020 05:27 PM #15
Rainmaker
1,589,868
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

How in heck can you notarize on line? Isn't the notary supposed to check ID and then watch the person sign?

Mar 26, 2020 09:04 PM #16
Rainmaker
285,185
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Marte - 

Its a wonderful thing!  Notary trained in online procedures gets the two witnesses and the signor(s) all on a video conference, with some using their smart/iphones, and licences and SS numbers are authenticated and matched to the individual using a couple of questions grabbed from an instant credit inquiry online, then everyone signes electronically using their mouse or finger and its done.  We had another one yesterday and will do one next week with someone in Switzerland.  Only need is that signor has to have a US social security number and be able to answer the 3 or 4 questions.

Mar 27, 2020 06:10 AM #17
Anonymous
David Kemp

I was buying a house drawing down my retirement assets (plus social security) to make payments. If my assets have plunged by 40% due to the Chinese Virus, can that be a reason to bail out via force majeure?

Mar 30, 2020 08:09 AM #18
Rainmaker
285,185
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

David - I am afraid to look at mine.  Ignorance is bliss!!!

But to answer your question, if you were buying for cash, the answer is no this is not a force majeure event as to your performance.   If you were qualifying for a mortgage, and you no longer qualify under the terms of the loan approval, then yes this would be a reason to invoke Force Majeure, because your inability to qualify had nothing to do with any action or inaction on your part.  At least that is my humble opinion.

Mar 30, 2020 08:55 AM #19
Rainmaker
1,000,158
Jan Green
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Interesting conversation.  Each state has different clauses, addendums, and stipulations regarding the virus.  We have a new Addendum in Arizona specifically about this virus.  Will be interesting to see the final outcome of all of this!  Good luck with your transaction. I hope it all comes together for the best of both parties!

Apr 01, 2020 07:23 PM #20
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