As the world hunkers down in response to COVID-19, the virus presents many questions for the real estate industry – and the potential for disputes about whether a deal can close in light of the current “lockdown” environment. This issue may arise in commercial or residential contexts. However, particularly with regard to home sales, whether a seller must vacate his or her house at this time (or a buyer must complete a transaction that was premised on the ability to currently undertake a move) can raise serious health and safety concerns.
While the economy has dramatically slowed, real estate marketing and home sales continue – at least in many areas. Here in North Carolina, for example, the governor’s “stay at home” order exempts “essential” businesses, including: professional services, such as “real estate services (including brokerage, appraisal and title services)”; legal services; financial and insurance institutions; and “critical trades” like moving and relocation services. Business can go on, even if in a “socially distanced” way. But can a party to a real estate contract be forced to close a deal now? There is no clear answer for every case; however, various factors should be considered.
- Residential or commercial? Whether a contract is residential or commercial may be important. For instance, in a residential context, a seller’s health could be put at risk, if he or she is forced to vacate a home now. This concern may not apply in a commercial setting. But special circumstances might apply to businesses as well. If a buyer agreed to buy a property in order to operate a business and a state or local order now prohibits (or drastically impedes) such a business from operating, it could be argued that the entire purpose of the deal has been “frustrated” and that the buyer should be excused from its obligations.
- Force Majeure. Does the contract have a “force majeure” provision that specifically addresses “acts of God” and other unexpected calamities? In a large commercial transaction, it probably does. In a standard form residential contract, maybe not.
- Postponement. Can the parties mutually agree on terms to postpone the closing? The N.C. Association of Realtors recently issued a COVID-19 Addendum form to supplement the standard sales contract. The addendum allows the parties to extend deadlines and provides other related terms. Of course, if no one knows exactly how long we will be affected by COVID-19, even negotiating an extended closing deadline might be tricky.
- Leasing Options. In some situations where a seller may not wish to currently vacate a property, it may be workable to close a sale and then have the seller continue to occupy the property under a lease. In North Carolina, a standard Seller Possession After Closing Agreement might be used – or a more detailed formal lease could be drafted by a lawyer.
- Stay at Home Orders. What are the terms of all applicable “stay at home” orders in your locality? Consider that local orders may be more restrictive than any statewide order.
- Litigation. If the parties cannot negotiate a resolution, what are their options? Potentially, if a real estate contract is breached, the non-breaching party could sue for “specific performance” (a court order forcing the other party to complete the deal) or for “damages” (money lost as a result of the breach). In some circumstances, such action may be necessary. However, with courts currently restricting hearings and other litigation activities, a resolution in court may not be quickly achieved. Moreover, existing legal precedents may not be completely reliable to predict how judges and juries will view the very “novel” issues presented by COVID-19.
About the Author
Elliot has practiced law for over 20 years and is a member of the Federal, North Carolina and Forsyth County bar associations. He is an experienced litigator with major case experience in state and federal courts and in private arbitrations. Elliot has a broad range of experience with real estate disputes law in contexts ranging from shopping centers to affordable housing complexes.