Covid-19 has created a novel addendum some realtors are inserting into Purchase Agreements, a Force Majeure type of provision that is designed to postpone deadlines and cancel otherwise Enforceable Purchase Agreements.
The effect of the typical force majeure clause is to excuse performance of one party to a contract in the event an unforeseen circumstance occurs. Those unforeseen circumstances are usually centered around uncontrollable events such as earthquakes, fires, tornadoes, armed conflict and other natural and unavoidable catastrophes that interrupt the expected course of events and prevent participants from fulfilling the terms of a contract. Minnesota law is clear that the clause itself is determinative of the performance to be excused, and courts applying Minnesota law are reluctant to read a force majeure clause broadly.
The Minnesota Realtors Forms Committee held an emergency meeting on Thursday, March 19th, 2020 and adopted the Addendum or Amendment to Purchase Agreement: Coronavirus Disease of 2019 (“Covid Addendum”) to assist realtors and their clients in creating an extension of the Purchase Agreement deadlines for those circumstances where there is a COVID-19 related event that inhibits a party’s ability to perform under their current purchase agreement and allows cancellation of the Purchase Agreement under some circumstances.
The Covid Addendum states that “both parties, acknowledging that the evolving circumstances of the coronavirus/COVID-19 may result in unknown or unforeseen events, …beyond the control of the parties.”. (See Covid Addendum, lines 6-8). A Covid-19 event is defined broadly by the Covid Addendum as “… A similar unforeseen impediment related to the COVID-19 pandemic that is outside the reasonable knowledge or control of the delayed party.” (Id at line 20). Under the Covid Addendum, “Buyer and Seller hereby agree to amend or add the following provision(s) to the Purchase Agreement: … Buyer and Seller agree to extend all deadlines in the Purchase Agreement by 14 Calendar Days if either party provides written notice of the COVID-19 Related Event to the other party…either party may cancel the Purchase Agreement by providing written notice to the other party…no later than the end of the COVID-19 Extension Date. If either party cancels the Purchase Agreement, Buyer and Seller shall immediately sign a Cancellation of Purchase Agreement…”. (Id at lines 25-33). This Addendum can be interpreted as giving either the Buyer or Seller an “out” with respect to the Purchase Agreement upon notice of a Covid Related Event and written notice of cancellation of the Purchase Agreement. The Purchase Agreement is cancelled under the terms of the Covid Addendum. Surely this Covid Addendum will result in litigation.
Whether a party was (or is) justified in excusing performance under a contract, or cancelling a contract due to covid-19 is likely to be a key issue in contract law in 2021. In order to protect clients, it is necessary that any contract includes a well-drafted force majeure provision, so that the failure of performance of a contract due to Covid-19 will not be detrimental to clients.