The contracts drawn between a seller and buyer in South Florida may never be the same again.
As coronavirus continues to spread, real estate agents are adding a “COVID rider” to existing contracts and including it in new sales. The standard force majeure clauses that protect sellers and buyer in the case of an act of God typically cover only natural disasters like earthquakes, hurricanes and tornado.
Pandemics have not been on the list. That is, until now, said Miltiadis Kastanis, director of luxury sales for Douglas Elliman.
“Yesterday’s contract is not today’s contract. Legal intervention is the smartest thing we can do,” Kastanis said.
Several Realtors say they contacted their attorneys in March, as the crisis was growing, to update pending sales contracts and write new ones that specifically include pandemic or coronavirus as covered reasons for canceling contracts. Kastanis now sends his contracts for approval first to his attorney before sending it to the buyer for review.
The COVID clause protects both the buyer and seller, he said. For the buyer, it gives them more time to complete tasks, including finalizing lending — should a bank have halted lending altogether — or complete an inspection.
It also protects the seller, Kastanis said. “A buyer may say, ‘Well, my bank isn’t lending.’ It may be an excuse for the buyer to walk out.”
It also faciliates contract extensions, said Anthony Askowitz, broker and owner of RE/MAX Advance Realty.
For sellers, such clauses act as a hedge against fluctuations in the market, Askowitz said. “Their home may not have the same value in the future. We know the value from yesterday. We don’t know what the value is going to be after the pandemic.”
The clause may also offer a sense of security to lenders, he said. “This is a protection for banks. Banks need this because it puts things in context of what people can expect. We saw that early on when people wanted to get out of their contracts, this ensured that they couldn’t.”
The addendum or clause is legally binding, said attorney Florentino Gonzalez, co-chair of the downtown Miami-based Shutts & Bowen’s Real Estate Practice Group. If the buyer tried to pull out after all mortgage, appraisal and inspection services are back to normal, “they can risk being sued for specific performance of contracts or lose their deposit,” said Gonzalez.
But because a pandemic can be infinite in nature, Gonzalez said, there will also likely be a deadline for any contract extension.
The addition of the word ‘pandemic’ as a force majeure is here to stay, Kastanis said. “It has shown to impact our market strong enough.”
Source: Miami Herald