COVID-19: Force Majeure Clauses in Contracts

Since the onset of the Coronavirus, business as we know it has changed. The pandemic has created all sorts of monumental disruptions in business as cancellations and delays have affected all sorts of industries: hotel, travel, events, professional sports tournaments, concerts, and real estate closings. Questions arise as to whether underlying contracts provide for a party who cannot fulfill the contract’s terms, for reasons outside of one’s control, to not be considered in default.

What is Force Majeure?

Usually, contracts have “force majeure” clauses that allow for parties to delay performance or actually get out of certain obligations in the event of unforeseen or uncontrollable events. Simply put, a party‘s performance under a contract is excused when certain circumstances beyond their control arise, making performance of the underlying obligation commercially impracticable, illegal, or impossible. Force Majeure clauses are common in most contracts and can prove to be invaluable when determining whether one party’s performance is truly outside of that party’s control.

The way these clauses are worded is key and has evolved since the September 11 tragedy as well as the storm damage of Superstorm Sandy. Not all force majeure clauses are alike, as it depends upon the purpose of  the contract as well as how well the parties’ thought of the potential implications for an otherwise remote or unplanned event or catastrophe.

How Has COVID-19 Effected Real Estate Contracts?

In real estate, the virus has delayed closings for a multitude of reasons. Buyers or sellers may be out of the United States, and do not have access to an open U.S. Consulate or Embassy, and therefore are unable to obtain the proper notarization of documents from where they are. International Civil Law Notaries, who can notarize documents outside of the U.S. are, however, currently unable to perform such functions due to COVID-19. Further, with social distancing being the new norm, more and more parties engaged in closings are requiring virtual remote online notarization especially in order to close residential real estate closings. And, specific to COVID-19, a Coronavirus Extension Addendum to Contract has emerged.

Will Force Majeure Clauses be able to Include all potential situations?

It is fair to say that negotiating contracts has and will continue to evolve as a result of COVID-19. It is nearly impossible to predict for every single possibility in life; however, moving forward we all have much to consider, and our business negotiations and everyday dealings with each other will change.

In these ever-evolving times, we wish you all to be safe and well.

From the trenches,

Roy D. Oppenheim