What is the purpose of the force majeure clause in Florida Bar “AS IS” contract, and how can it effect my real estate sale or purchase during the COVID-19 epidemic?
One does not have to go to far to know that COVID-19, or the Corona Virus, has hit the “pause” button on just about everything we considered to be normal human interaction and business efforts. All industries have been effected, and although I have hope that WE WILL GET THROUGH THIS STRONGER, one thing that a lot of clients and realtors call me about, is whether their real estate closing can be stalled, or excused, because of the Force Majeure clause of the standard contract Far Bar “AS-IS” contract (Section 18g) excusing or stalling performance under the contract.
Something that I get asked quite often, after this epidemic has happened: “can the buyer refuse to close on this purchase under the force majeure clause of the contract, and get their deposit back, simply because they are fearful about the situation and the USA’s financial well-being? “
Specifically, force majeure requires a party to show a very specific and compelling reason why a party cannot perform, as opposed to a more general sense that times are tumultuous. So the simple answer to whoever asks the questions above, is that being scared of the economy crashing is not a compelling reason to excuse performance.
Nevertheless, there is not an abundance of legal precedence to predict how a court may rule on disputes that arise from transactions during this time, and if the issue is one to be litigated, a Court of Law will decide who is right.
What does the force majeure clause in Far Bar “AS IS” contract actually say?
Section 18(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.
What is force majeure?
Serious situations where performance would be impossible because something so catastrophic has happened that performance is not possible. This includes the catch all “acts of god”, which can encompass many situations. Examples in the standard “AS-IS” contract of force majeure situations are: hurricanes, floods, extreme weather, earthquakes, fire, unusual transportation delays, wars, insurrections, or acts of terrorism.
What does the Force Majeure clause do, in layman terms? The force major clause, once triggered, will provide an extension up to 7 days on certain material dates, such as the closing date. One major thing to know is that if the force majeure situation continues beyond 30 days of what was the anticipated closing date and the parties cannot perform, then either party may terminate the contract (and buyer keeps the deposit) by delivering written notice to the other in accordance with the notice requirement of the contract.
Is the Corona virus considered an act of God that would be triggered under Force Majeure? The Corona virus is not a specifically listed force majeure category in the “AS-IS” Far Bar contract, and in reality weather-related factors are easier to analyze than public health emergencies, such as the Corona virus.
Buyers and Sellers are likely going to be litigating this issue for the time being, unless an agreement can be reached otherwise. What matters most is the specific set of facts and situation, and the law available. The truth is that there is not much clarity on this issue, and there is very limited case law to aid us on this. There was a Florida Supreme Court case from 1944 where we received a bit more clarity on what constitutes an act of God. Florida Power Corp. v. City of Tallahassee, 18 So.2d 671 (Fla. 1944) concluded that a hurricane preventing FPL from provide power under the contract, was an act of God that prevented performance, and therefore excused FPL from being liable under the contract.
What happens to the escrow deposit if the buyer does not close blaming the COVID-19? If this is a consideration, the parties definitely needs to speak with an attorney. A buyer can potentially lose all of their escrow deposit if procedure is not followed properly, and a seller can walk into a situation where they are unable to sell their property because the property is under contract but with no closing in sight.
Bottom Line: If you are a buyer who does not want to close because of the Corona virus, you need to speak to a lawyer. Your deposit may be at risk, and waiving around the Force Majeure clause, to the other seller is simply not enough. Litigation may be in the midst, let a lawyer assist you in this situation.