Will Considerations Over and Obstacles Presented By COVID-19 Excuse a Buyer’s Performance Under a Residential Real Estate Contract?

COVID-19 is affecting industries and transactions across the United States. The transactional fallout of the COVID-19 pandemic still remains subject to much debate as far as ongoing transactions where contracts were executed prior to the manifestation of the pandemic are concerned, affecting and having consequences for buyers, sellers, landlords and tenants of residential and commercial properties. For residential transactions which have been entered into subsequent to the manifestation of the pandemic, real estate agents and attorneys are now employing a COVID-19 Addendum that was developed by Florida Realtors in concert with The Florida Bar which expressly allows and provides for delay and termination without forfeiture for the direct and indirect impacts of the pandemic.

However, with respect to those residential transactions which are still lingering from earlier in the year, many buyers are pondering the possibility of having their performance excused under real estate contracts pending closing due to the impact of COVID-19. This is a reasonable consideration, especially for buyers who were planning to liquidate stock market investments or to finance some part of their transaction with a loan. These types of investments have undoubtedly experienced a material decrease in value and their employment continuity, either in the short term or in the long term, has undoubtedly been affected by the associated ongoing economic turmoil, which has made them far less creditworthy and/or capable of repaying borrowed funds. As these buyers seek legal counsel as to their available options, it follows that attorneys and their clients will be examining and analyzing “Force Majeure” clauses to either extend contractual deadlines and/or to terminate such contracts.

The most commonly used contract for residential transactions in South Florida is the “AS IS” Residential Contract For Sale And Purchase developed by Florida Realtors in concert with The Florida Bar. The “Force Majeure” provision is contained in Paragraph 18(G) of that Contract, which reads as follows:

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.

As you will note, this provision expressly enumerates all of the various events, or “parade of horribles,” that would constitute an event of “Force Majeure,” and it permits the extension of all time periods as well as an outright termination of the contract if a defined event of “Force Majeure” were to occur. Additionally, note that unlike many commercial real estate contracts or lease agreements, this provision in this particular residential form contract does not explicitly list epidemic or pandemic as an event of “Force Majeure,” or even, more generally, circumstances which are beyond the reasonable control of the party seeking to excuse its performance, among all of the other expressly identified as “Force Majeure” events. If it did, the application of this provision and concomitant excused performance would be clear. Nevertheless, we are in unprecedented times, and a court could certainly and very reasonably determine that COVID-19 is a Force Majeure event if it deemed COVID-19 to be an “act of God” within the meaning of the Contract. But under the express terms of this particular “Force Majeure” provision, in order for it to apply to be able to extend contractual deadlines or to terminate the contract, there are several threshold considerations which actually must be satisfied, which are that (1) some event must occur which constitutes a Force Majeure; (2) the Force Majeure event must cause a party’s performance obligations, or the availability of inspection, surveying, title, closing or other material services which are expressly contemplated under the contract to be disrupted, delayed, hindered, impaired or prevented; and (3) the non-performing party must be unable to overcome the Force Majeure event even with the “exercise of reasonable diligent effort.”

Consequently, under the most-often used residential form contract, even if a court were to deem COVID-19 to be an “act of God” within the meaning of the contract, as long as the buyer can find title agents, lenders, inspectors, appraisers, surveyors and other professionals necessary to service the transaction who are willing and able to do their jobs, even remotely or virtually if need be, the buyer’s performance would not be prevented in a manner which the buyer could not “overcome.” As such, the buyer would still technically be able to perform its obligations under the contract, and the looming pandemic will not excuse the buyer’s performance or allow the buyer to extend deadlines or terminate the contract. As the COVID-19 landscape keeps changing, including the imposition of governmental “stay at home” orders which restrict commerce to only certain defined “essential services” throughout the State of Florida, these various professionals – as well as buyers themselves – might find themselves ordered to stay in place, their businesses closed or even property associations unwilling to screen applicants or allow non-residents into communities to conduct certain contractually contemplated services. Stay tuned!

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