Florida Realtors White Paper: When It Comes to Contracts, Is Coronavirus a 'Force Majeure'? - YouTube

BARRY GROOMS: Greetings everybody. It's 2020 Florida Realtors President Barry Grooms here.

In a moment, Florida Realtors General Counsel Juana Watkins will explain where things stand regarding COVID-19 and Contract Performance.

Then she's gonna take some questions from me and members of the 2020 Leadership Team.

She'll then provide the answers ALL Realtors need to know.

A couple quick things before we begin. You know there's a White Paper containing the content of this video available at

floridarealtors.org/coronavirus. In other words, don't worry about taking notes.

You'll be able to read everything we're about to discuss. We're also creating an audio file of this video

so you can listen and share with your colleagues. Now, here's General Counsel Juana Watkins.

JUANA WATKINS: Thank you Barry. The Florida Realtors Legal Hotline has been flooded with questions from members

who wonder if COVID-19 related issues are valid reasons to delay or excuse performance under a contract.

The short answer is that force majeure requires a party to show a very specific and compelling reason why they can't perform,

as opposed to a more general sense that times are tumultuous.

Since this is an extremely nuanced and complicated question to field, we'll try to break some of the issues surrounding

this question into targeted questions and answers.

So let's get started. Routinely we hear these times described as unprecedented.

Legally, that means there is not an abundance of legal precedence to predict how courts may rule on disputes that arise

from transactions during this time. Here, we will explore some of the considerations for courts

that will have to read the language of the contract, apply that language to the facts and circumstances of each transaction,

and analyze that information under the law.

One thing we know is that the language of the contract matters. That language is not always consistent from contract to contract.

Since the Florida Realtors®/Florida Bar “AS IS” Residential Contract for Sale and Purchase is

currently the most popular contract in the state, we'll use its force majeure clause for discussion purposes.

Section 18(G) Force Majeure. Buyer or Seller may 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, 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 the 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.

CHERYL LAMBERT: Juana, what does this clause DO?

JUANA WATKINS: It provides an automatic extension that comes into play when a dramatic event prevents a party's performance or closing from happening.

It takes an unusual event to trigger “force majeure” clause, as you can see from the few examples in the clause itself,

such as hurricanes, acts of God, and acts of terrorism. Once the clause is triggered, certain time periods (including the closing date, if applicable)

will be extended for a reasonable time up to 7 days after the force majeure no longer prevents performance.

Parties should pay attention to the time in relation to the closing date, though,

since either party may terminate the contract by delivering a written notice if force majeure continues to prevent

performance for more than 30 days beyond the closing date.

MIKE McGRAW: Do ALL contracts contain a force majeure clause?

JUANA WATKINS: No. Although this is a common clause in many contracts, it doesn't exist in all of them.

If it doesn't exist, then it doesn't apply, although there could potentially be other general arguments,

like impossibility or frustration of purpose.

CHRISTINA PAPPAS: Are all force majeure clauses the same?

JUANA WATKINS: No. The specific terms can vary, which means every analysis must look at the specific words of the executed contract

contract to see if they apply. It's possible for the same exact facts to qualify for force majeure

protection in one contract, but not in the other.

For example, some force majeure clauses include epidemics and pandemics as covered events, while others do not.

GIA ARVIN: Is the pandemic an “Act of God” as written in the clause? And does this force majeure clause apply to COVID-19 related issues?

JUANA WATKINS: We don't know. Both questions would hinge on a specific court's analysis. We have had lengthy discussions about this clause

amongst our legal team and just don't have a consensus. That's because this is an abstract concept, as opposed to a chart

showing which specific events fall under the definition and which do not.

There was a Florida Supreme Court case, Florida Power Corp. versus City of Tallahassee.

It can be found at 18 Southern Second 671, decided in 1944. But the case merely provides a general description of an act of God that makes clear it is a very limited definition.

The Florida Power case did conclude that a hurricane preventing the power company from performing its obligation

to provide power was an act of God that prevented performance, and therefore excused the power company from being liable

under the contract. Weather-related factors are easier to analyze than public health emergencies.

BARRY GROOMS: Do courts often allow force majeure to overcome contractual obligations?

JUANA WATKINS: No. As a very general statement, courts interpret these clauses narrowly, which means they are stingy in their application of force majeure.

BARRY GROOMS: Does your department believe that this force majeure clause would apply to many of the stories you've heard on the Legal Hotline so far?

JUANA WATKINS: Probably not. Here's a major caveat: we haven't heard many specific examples of facts that prevent closing

at the time of preparing this content, such as a closing agent that stops operations or is otherwise unable to conduct a closing.

Most stories involve people citing fear of an uncertain future or volatile economic conditions, as opposed to very specific facts

that prevent performance. Additionally, very few callers report parties who have been “reasonably diligent in their effort”

to “prevent or overcome” any hurdles placed in their way, as described in the clause.

Here's the caveat one more time: as the legal landscape evolves daily, it's very possible that we reach a point where we do

start hearing compelling cases in the future. Possibly in the very near future.

CHERYL LAMBERT: Could other sections of the contract come into play?

JUANA WATKINS: Yes. Although members calling the Florida Realtors Legal Hotline are typically asking about force majeure,

it's possible that some other parts of the contract applies. For example, a buyer who is still in an inspection

period under the “AS IS” contract may have the right to terminate if not satisfied with the property for any reason,

which is the buyer's sole discretion. A financing contingency might also be applicable, depending on the facts.

If a seller has not provided a condominium rider or has not delivered condominium documents, the buyer's right to void the contract

could also come into play. Force majeure is only one section of the contract to consider.

Parties should always read the full contract to see if any other clauses in the contract applies to their facts.

CHRISTINA PAPPAS: In addition to interpreting a specific force majeure clause, are there other similar legal theories that could apply to a party that is unable to perform?

JUANA WATKINS: Yes. There are two similar legal theories called impossibility of performance and frustration of purpose.

Both can be used as a defense if a party is sued for failing to perform.

CHRISTINA PAPPAS: So what is impossibility of performance?

JUANA WATKINS: It refers to situations where it is objectively impossible for a party under contract to perform

Here is an Example. A sale and purchase contract cannot close because closing services are not available due to language contained in an emergency order.

Under such circumstances, the impossibility of performance may be a viable defense for a seller to use,

since it is objectively impossible for seller to transfer title to the property to buyer on closing date.

Note, however the specific facts of each case will determine the outcome.

Impossibility of performance is a viable defense only if the knowledge of the facts making performance impossible was not available to the party claiming the impossibility,

from the beginning of the time when the agreement was entered. The defense is not permitted under such circumstances because if a party had such knowledge,

the matter could have been addressed in the agreement.

It is presumed that if the information was available and no provision was added to the agreement to address it,

the risk was assumed. In addition, the defense of impossibility of performance can't be raised

if the impossibility could have been avoided or was foreseeable.

In the previous example, a sale and purchase contract cannot close due to the fact that closing services are not available where all commerce and services

have been temporarily closed, due to an emergency order. Under such circumstances,

the impossibility of performance may not be a viable defense for a seller to use if the emergency order

was issued before the parties began their negotiations. This is why the specific facts of each case determine the outcome.

MIKE McGRAW: What is the second defense, frustration of purpose?

JUANA WATKINS: This refers to the scenario where one of the contracting parties finds that the primary purpose that prompted them to enter a contract,

and which purpose was known by the other party, had been frustrated because of a change in circumstances.

For Example. Landlord and tenant enter into a lease. Both sides are fully aware that the sole purpose behind tenant entering into the lease

is so that tenant can use the premises for a specific purpose.

However, if government restrictions related to COVID-19 now prohibit the tenant from being able to use the premises as planned,

frustration of purpose may apply.

MIKE McGRAW: How likely is it that a party will be successful in defending a breach of contract claim using these theories?

JUANA WATKINS: As is the case with interpreting force majeure clauses, courts grant these defenses sparingly.

Given the importance of the enforceability of contracts, these theories are cautiously applied by the courts.

If the facts causing the impossibility could have been known, were caused by the party or

could have been avoided by the party claiming the impossibility to perform, the defense will likely fail.

GIA ARVIN: What happens to the escrow deposit if the buyer does not close because of COVID 19?

JUANA WATKINS: This is a common question right now. A buyer considering not closing does so potentially at their legal peril.

A buyer who does not close must have a valid legal reason to do so. As we said, it is possible a buyer is not closing due to the inspection clause

or some other option given under the contract. Fear and uncertainty of the future action are not enough.

Any buyer who intends to argue force majeure, legal impossibility, frustration of purpose or other legal argument should consider consulting an attorney.

The decision of a court will be very factually specific. A buyer taking a wait-and-see attitude and making no effort to close

may find the court unsympathetic to their argument.

While the content of this video, and its companion White Paper serve as a broad overview of key concepts that excuse nonperformance, Florida Realtors Legal Hotline

lawyers are always happy to discuss the nuances of these provisions since, as many of you can see, they hinge on case-by-case determinations

that rest in the hand of individual courts. The Legal Hotline number is 407.438.1409

and is available Monday through Friday from 9 am to 5 pm.

BARRY GROOMS: Thank you Juana, we appreciate your support and your expertise. Folks, things are changing constantly

regarding COVID-19. Your 2020 Leadership Team along with CEO Margy Grant strongly encourage you to create a couple of media habits.

Number 1, read Florida Realtors News every day. Number 2, check in with Florida Realtors Facebook page.

And Number 3, visit floridarealtors.org/coronavirus which is packed with useful information. Until next time, take good care of yourself. Be well.