There are strong arguments why people as well as businesses should not be able to use the Force Majeure clause to throw away their contracts.
Force Majeure and COVID-19
The effects of the COVID-19 pandemic on the global economy are still largely unknown. However, given the financial uncertainties, many are seeking ways to excuse their performance under their existing contracts, or drop out of deals. Many evoke Force Majeure. Is that a valid argument?
Definition of Force Majeure
What is Force Majeure? Unexpected event or unforeseeable circumstances that prevent someone from fulfilling a contract. However, in most countries there is no standard definition of force majeure, meaning its applicability depends entirely on the specific wording of each contract.
The doctrine of force majeure is based on the common law doctrine of impossibility of performance
Law.com
When is Force Majeure Possible?
Let’s forget real estate, and talk about a different sector first: the aviation industry.
Today, easyJet and Airbus made the headlines. Indeed, EasyJet’s founder, Stelios Haji-Ioannou, is pushing hard to get out of a deal with Airbus for future delivery of 107 aircraft, considered as a “risk to survival” in the current situation. Cancelling or delaying a £4.5bn Airbus order for 107 aircraft might, or might not be excused, invoking force majeure.
Extraordinary travel restrictions and a tremendous drop in passenger demand may, or may not be enough. If easyJet can not be certain that Force Majeure will work for them, how can you for yourself?
Why Canceling Real Estate Deals Is Rarely Possible Due To COVID-19 and Force Majeure
As in any contract, the party claiming force majeure needs to prove that their ability to meet the contract was impaired or made impossible by the coronavirus. A temporary lockdown is not enough. In most cases, it delays the transaction.
Tip: look at all other clauses present in your contract!
“If you bought a house before the coronavirus crisis hit, don’t expect force majeure to save you”
Financial Post
What should my next steps be?
Review – review the contract in details.
Seek legal advice – If you or your real estate investment is at risk, contact an attorney.
Sources: FastCompany, Law.com, JDSUPRA, Forbes, CNBC
Update on 30 March: 780,552 Coronavirus Cases, 37,552 Deaths. Countries with highest numbers of deaths:
- Italy
- Spain
- China
- France
- United States of America
