The Meaning of Force Majeure

“Force Majeure” means: hurricanes, floods, extreme weather, earthquakes, fire, or other acts of God, unusual transportation delays, or wars, insurrections, or acts of terrorism, which, by exercise of reasonable diligent effort, the non-performing party is unable in whole or in part to prevent or overcome.

READ: Orlando Legal Advisory

As it pertained to Hurricane Irma 2017 event in Florida

In the wake of Hurricane Irma, many buyers have questions about the effect the storm will have on your contracts and your buyers and sellers. This information is designed to provide you with key principles and FAQ’s that should help guide you through the impact of this event:

1. Was Irma a “Force Majeure” event? Yes, beyond any possible doubt, Hurricane Irma is very clearly a “Force Majeure” event under the FR/BAR contract and under Florida Law. Therefore, Sections 5(b) “Extension of Closing Date” and 18G “Force Majeure” of the contract are now activated.
2. What happens when a “Force Majeure” event occurs? The first thing to know is that ALL time periods for ALL performances of ALL duties for BOTH Buyers and Sellers are automatically extended for a period of 7 days. This means deposit dates, inspection period end dates, loan approval period end dates, closing dates etc. Some people appear to have the impression that only closing dates are affected. Not so. Section 5(b) refers only to the Closing Date, but Section 18G refers to all other dates and periods as well.
3. When did the Hurricane Irma “Force Majeure” event begin and end? In my opinion, the Hurricane Irma Force Majeure “event” probably BEGAN on either last Thursday or Friday, September 7 or 8, 2017, since that is when insurance clearly stopped, and major government offices began to shut down. If inability to get insurance is the cause of a delay, then the start date for that probably extends back to last Tuesday, September 5 when insurance underwriting stopped in Florida. In my further opinion, the event arguably ends today, September 11, 2017, since the storm is no longer in our state.

HOWEVER, please note that there is no clear authority on this subject, and there is no additional guidance in the contract. I strongly suggest that all parties not be TOO strict on the begin or end time frames of the Hurricane Irma “event” – you really do not want to litigate being a hardass. This is stressful for all, and pushing the envelope on strict enforcement is not likely to be well received in a court room.

To be safe and conservative, I would suggest that you assume the “event” began on Thursday, September 7, 2017 (unless related to insurance, and which event go back to last Tuesday, September 5) and will end tomorrow, September 12, 2017. I suggest that any deadline for any performance that was to have taken place anywhere in that time frame be extended to September 19, 2017. That should be safe for all and not subject to any violent argument. However, please NOTE: I do think that if a property is without some utility service, all parties should be given until 7 days after all utility services have been restored.

4. What if nothing happened in the storm that really has any impact on anyone’s ability to perform? Do they still get the extension? Let’s say for example that there was no damage, no utility loss, and the lender is still ready to go, etc. Does the Buyer still get the extension? Yes, they do. There is no requirement to “prove” that the hurricane actually interfered with any duty; the interference is ASSUMED.
5. What if there was damage to the home and Buyer is not sure they want to proceed? First, if the inspection period in the “As Is” contract is still ongoing (as extended by Irma), the Buyer can clearly walk as always; there is no special clause that ties a Buyer to the deal in an “As Is” contract just because of a Force Majeure event. But what if the Inspection Period had ended, or this is a standard contract, not an AS IS contract? In this case, refer to Section 18M “Risk of Loss”. (see below)
6. Can a Buyer be forced to buy a damaged home? Yes, the Risk of Loss section basically states that the buyer must still proceed, even if the home is damaged, provided that: (a) the cost to fix the damage does not exceed 1.5% of the purchase price and (b) Seller makes efforts to repair up to 1.5% of sale price and (c) that if Seller is unable to start or complete repairs in time for closing, Seller escrows at closing an amount equal to 125% of the total cost to undertake (or complete) repair. So yes, this means that Buyer is indeed contractually required to buy a damaged home, or risk losing the deposit. Again, In the event of damage, the seller is required to TRY to fix it before closing UP TO A TOTAL COST of 1.5% of the sales price, but if the seller cannot reasonably do so, then the escrow reserve is triggered. The Seller cannot just cancel the deal because it is “too much trouble”, although the Seller has NO OBLIGATION to spend more than 1.5% of the purchase price for repairs, and if it is clear that repair will exceed that 1.5%, then Seller may decline to close unless Buyer agrees to take the home despite the lack of repairs (in which event, the seller would be required to at least give a 1.5% credit – see below).
7. Can a buyer’s lender provide an excuse not to purchase a damaged home? SOMETIMES. If the Buyer is financing, and the loan is FHA or VA, the FHA/VA Rider MAY provide an out based on the special requirements of the FHA/VA, but not if the lender is conventional. If a conventional lender refuses to close because of the damage, the Buyer will likely be in default. Remember, that this unhappy result applies ONLY AFTER the Loan Approval Period has EXPIRED. If the Loan Approval Period has not yet expired, both the lender and the Buyer can cancel the transaction in the normal manner for failure to obtain financing – the reason in that case does not matter, and need not be proved or stated – hurricane damage is as good an excuse as any not to finance.
8. So who decides of the damage is under or over 1.5% of the contract price? And who decides the exact cost of repairs on which the 125% escrow reserve is based? HMMMM…. WELL…. UMMMM…. Unfortunately, the FR/BAR contract sadly DOES NOT SAY! The parties will just simply have to agree. I realize that this is NOT a good answer, but unfortunately it is the only answer there is.

I do have a “real world” suggestion: As a practical matter, most buyers have already hired a professional inspector ANYWAY. I strongly suggest that the buyer try to get the inspector to estimate the number in writing. Although the inspector works for buyer, they are still an independent licensed professional, and courts will not generally assume that such a licensed professional would risk their license or reputation for one single buyer. It will be hard to argue with the opinion of an independent professional. Seller is also entitled to get an estimate, but it will likely be harder for seller to find someone quickly under the post-hurricane crush of business. Certified contractors are also good sources of opinions, but they tend to be all over the board. This is just my suggestion. There is no “perfect” answer.

9. What if Buyer wants the house despite the damage and the damage exceeds 1.5%? In that event, sale proceeds, Seller provides credit of 1.5% of the purchase price and Buyer has to absorb the rest. This one is fairly simple. Essentially, the seller cannot be compelled to repair anything that costs more than 1.5% of the sales prices (similar to the standard “default” repair clause of the Standard FR/BAR contract), but seller does have to give the 1.5% credit if the buyer wants to close despite the damage being higher than that.
10. What if no one agrees on any of this (time frames, 1.5%, 125%, etc.)? I personally think it will be relatively hard for a Seller to win a case forcing a buyer to buy a damaged home when there is halfway decent argument that repairs exceed 1.5%. I also think that seller defaulting a buyer (or vice versa) because of a difference of a day or 2 over when the Irma event began or ended is a fool’s errand. Courts are going to expect everyone to be “reasonable” in the wake of a genuine disaster. “Hardasses” are likely to be disappointed. In short, DON’T PUSH IT TOO HARD. Try to agree. If you can’t, don’t go crazy. Let it go. This sort of thing only happens once every 10 or 20 years. It’s no one’s fault.

Please also let us know if there is anything we can do to help you.  We have all services at our office (phone, internet, power, AC, water, etc.).  If you need a place to work out of temporarily, we will make space.

Thank you for the opportunity to serve you!

Lew Oliver
11513 Lake Underhill Rd.
Orlando, FL 32825
Cell 321-337-1368

F 407-249-5008
Leslie@OliverTitleLaw.com