In a recent post on RealTown’s RealTalk, longtime member Ardell DellaLoggia announced, “Breaking News. We all need to learn the term Force Majeure. I'll let someone like John Reilly expound on this if he is able. We just added a Contract Addendum in our MLS adding the right to extend on all contract deadlines due to a Force Majeure. The term is not new in legal terms, but I have never seen it used in Real Estate and your MLS service or Board of Realtors may call it something else. Our MLS is not a 'Board Form' operation."
My response follows:
The Coronavirus pandemic would seem to be one of those uncontrollable events that are not the fault of any party and that make it difficult or impossible to perform in a timely manner. Still, there is no certain answer as to application of “force majeure” in the pandemic situation. Unless there is specific coverage in the contract or an addendum, the typical attorney response would be "it depends on the facts and provisions of each contract/transaction."
One thing for certain is that real estate licensees should not give legal advice. The classic example of an agent violating the unauthorized practice of law rule is helping their client draft their own language covering the COVID-19 pandemic. You or your broker should consult a real estate attorney. Use a form that has been approved by your Association of REALTORS and their counsel. Among the states providing Addendums for their members are Florida, Texas, Pennsylvania, Washington, Georgia, and California.
Here are some definitions from my Language of Real Estate book relating to two terms you will be hearing more about in these troubling days – Force Majeure and Act of God. I'll need to add pandemic to my book definitions.
Force Majeure -- A term originally used in insurance law for a superior or irresistible force, which cannot be foreseen or controlled (a “vis major”). It refers to a clause found in many construction contracts that is designed to protect the parties when part of the contract cannot be performed or the time of performance must be delayed due to causes beyond the control of the parties that cannot be prevented by the exercise of due care and prudence.
An example from another industry -- a subcontractor might agree to pay $500 per day in damages for each day past December 31 that installation of the plumbing is not complete, except if the delay is caused by acts of God, labor disputes, inability to obtain materials, fire, and the like. Thus, if a shipping strike were to cause a 30-day delay in the arrival of the plumbing lines, the subcontractor would not have to pay the $500 per day, at least through January 31.
Sometimes a force majeure clause is inserted in a ground lease to protect a tenant who is obligated to complete an improvement by a certain date from a default caused by unavoidable delays in completing the project. (See act of God).
Act of God --An act of nature beyond human control (natural disasters), such as a tidal wave, flood, hurricane, volcanic eruption, or earthquake. Many contracts include a force majeure clause, which temporarily or permanently relieves the parties of performance of a contract where an act of God has destroyed or damaged the subject matter or prevented performance. Under the name "destroyed or materially damaged clause," this provision relieves the parties to a real estate sales contract from performance when an act of God has damaged the property’s improvements before the transfer of title. (See force majeure.)
Keep this scenario in mind: Your buyer is ready to submit an offer on the home of their dreams. The buyer says they saw something on the news about the Coronavirus and asks you to write some protective language into the standard form contract. Agent A quickly composes some protective language into the contract that the buyer approves. Agent B attaches the Coronavirus Addendum prepared by their Association or Broker’s attorney.
Don’t be Agent A.
