Force Majeure and the COVID-19 Pandemic
Uncertain times lead to unanticipated concerns, and we grapple for clarity where none seems to exist. The most obvious question on many agents’ (and clients’) minds is whether the “Force Majeure” provision of the FAR/BAR contract allows a party to cancel. In a word, no, at least not initially.
Section 18(G) of the FAR/BAR contract defines what constitutes an event of “Force Majeure,” and provides breathing room when extraordinary forces beyond the parties’ control prevents timely performance under the contract (think of the snowstorm that keeps the overnight delivery planes grounded, or the hurricane that shutters businesses). Deadlines are extended a “reasonable time up to 7 days” after the prevention issue has subsided, and the parties can cancel if performance is prevented 30 days beyond the closing date.
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 the 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.
Arguably a global pandemic would constitute an “act of God.” But how, as of this writing (March 20, 2020), does the coronavirus prevent a party’s performance? Unless someone has taken ill and become incapacitated, the mere existence (threat) of the virus and its various impacts has yet to upset the closing service supply chain. In other words, it is still possible to get insurance, title examinations are still occurring, mortgage loans are still being funded, and closing agents are still open for business.
There is already suggested contract addendum language circulating in the marketplace on this subject. The most holistic of the options is FAR’s modification of their standard extension addendum, which they re-tooled into the “Coronavirus (COVID-19) Extension Addendum to Contract,” containing the usual collection of check-the-box extension options, but modified to include a preamble that describes possible virus-related service interruptions, a default 30-day closing date extension (if selected, and unless otherwise manually modified), and a paragraph providing that should a bank refuse to fund a mortgage loan as a result of the pandemic, the buyer may cancel the contract.
Whether or not parties faced with virus-related illness or business interruptions will be agreeable to what FAR’s form provides is anyone’s guess, but it is a nimble attempt to provide a statewide solution to a developing, nuanced issue. Regardless, the question remains whether, as a result of the COVID-19 outbreak, the Force Majeure provision applies in any pending, current transaction. The answer is fact specific, but as of this writing, is likely no. Not until essential closing services are shuttered, or a party is medically incapacitated as a result of the virus, could this contract provision be realistically invoked, and then only to extend performance deadlines, and not to automatically cancel the contract.
The situation surrounding the spread of the coronavirus is fluid, and numerous forces are impacting business continuity across virtually every industry. While one-size-fits-all solutions are appealing for their simplicity, they may not accurately address the circumstances of your particular sale, or best meet the needs of your clients. The best advice is to keep your trusted resources (including your legal counsel), available and engaged as your transactions progress, so you remain prepared and ahead of any developing issues. The attorneys of Williams Parker are uniquely qualified to help you navigate this challenging environment, and we wish you continued health and safety during these uncertain times.
Williams Parker’s COVID-19 response team is continuing to monitor these and other developments, and advise on issues arising from the Coronavirus.