Why is Everyone Talking about “Force Majeure” Clauses Right Now?

Real Estate Law

Until recently, unless you were drafting a contract or were a party about to sign a contract, you probably never even heard of “force majeure.” Now it seems like it is the “word du jure.” Everyone’s talking about it.

Why?

What is Force Majeure and Why is it Suddenly so Important?

Well, it’s all a matter of contract.

If you have a real estate lease, purchase and sale agreement or any other kind of contract right now, or are thinking of entering into one, you need to know a little bit about force majeure clauses.

Contract Basics.

The purpose of any written contract (although much of the following information also applies to oral contracts, this post focuses on written contracts) is to get down in writing all the terms of the parties’ agreement. That way, if a dispute arises, it can be resolved according to the terms of the written agreement.

The essential terms of a written contract include such basics as:

  • The identity of the parties
  • The subject of the contract
  • The terms of the agreement (including payment) and termination
  • The parties’ assent to the agreement.

Bear in mind that each one of these basic terms has its own requirements which it would take far too long to go into here. However, the point is that a contract’s purpose is to spell out the terms of the agreement as clearly and as completely as possible.

To that end, contracts also try to anticipate what could happen to interfere with the performance of the contract as a whole, or a party’s ability to perform under the contract. There are generally clauses that specify under what conditions the contract can be terminated if it cannot be performed and when a party’s performance under the contract can be excused.

Real Estate Contracts, Force Majeure, and the COVID Pandemic.

Most real estate contracts, including leases, loan commitments and construction contracts, have such clauses in them. These clauses excuse a party’s performance under certain conditions. The one clause being talked about a lot these days is the  “force majeure” clause.

Force majeure clauses generally excuse a party’s performance if certain conditions occur. Typically, the conditions specified must not be foreseeable and they must:

  • Be an “Act of God” – generally this refers to natural disasters, such as floods and hurricanes etc.
  • Cause the material physical damage or destruction of the subject of the contract, or
  • Result in impossibility or impracticability of performance.

The COVID-19 pandemic is having an unprecedented impact on all kinds of real estate contracts. And it is causing a lot of people to question whether they can, or should, go forward with the contracts they have entered into — including purchase and sale contracts.

Because of the shutdowns and lost jobs, most businesses and individuals are looking at their contract contingencies and force majeure clauses to see if they can safely get out of their contractual obligations.

The problem is that unless a contract specifically identifies “pandemic” as a force majeure condition, COVID-19 doesn’t fit neatly into any of the traditional situations. Is it really an “Act of God”? Can you prove that the pandemic caused “physical destruction” of a company or product?

The answer to these and other questions heavily depend upon the facts of each case and how the clause is interpreted. So, the terms of each contract must be carefully considered before making a decision.

Whether your force majeure clause fits your situation or whether there are other common law theories that can help you get out of your contract, requires careful analysis. During these times of social and legal flux, it critical to consult with experienced counsel about your situation.

Real Estate Attorneys in Cumming, Georgia. 

For more than 30 years, the Law Offices of Mark Weinstein has focused on all aspects of real estate law and litigation. We are located in Cumming, Georgia, but we serve clients in and around Atlanta, Marietta, Roswell, Sandy Springs, Kennesaw, Forsyth County, and a number of other counties in Georgia. Call us at 770-888-7707, or contact us here, or send inquiries by e-mail to: lawofficesofmarkweinstein@gmail.com.

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