What is a Force Majeure Clause?
A force majeure (pronounced “forss ma-zhoor”) clause is a provision in a contract that allows one or both parties to excuse (or sometimes delay) their performance obligations if circumstances beyond their control arise. These circumstances are typically called “force majeure events.”
Force majeure clauses are common in all types of contracts, but they are not always clearly defined. This can lead to disputes between the parties if an event occurs that frustrates or prevents one side’s performance, and the other party is not in agreement with the other party’s non-performance. If this occurs, it is foreseeable that litigation will ensue, in which a court must determine whether a party’s non-performance was excused under the contractual terms. Courts will usually specifically construe force majeure clauses meaning that the clause would be enforced according to the specific terms contained therein.
Force Majeure Events Under the FAR/BAR Contracts
Fortunately, for parties involved in Florida real estate transactions, the FAR/BAR contracts contain clear and specific language as to what events would constitute “Force Majeure” during a real estate transaction. By the terms of the FAR/BAR contracts1, included within the scope of what is considered a force majeure event are:
- hurricanes, floods, extreme weather, earthquakes, fires, or other acts of God;
- unusual transportation delays;
- wars, insurrections, civil unrest, or acts of terrorism;
- governmental actions and mandates, government shut downs; and/or
- epidemics and pandemics.
It is important to note that, under the FAR/BAR, if the event could be prevented or overcome by the non-performing party by exercising “reasonable and diligent effort” then it will not qualify as a force majeure event. This is consistent with one of the basic contractual doctrines that parties must always seek to mitigate damages or losses.
What events are not covered under the FAR/BAR?
While important to identify what is included within the FAR/BAR as a force majeure event, it is equally important to identify what is not specifically included. Some events that may commonly be identified in other contracts as force majeure, but which are NOT specifically identified in the FAR/BAR contracts are:
- Labor strikes;
- Supply chain disruptions;
- Power outages or other utility disruptions.
What happens and when? Extensions & Excuses
Under the FAR/BAR, should there be a valid Force Majeure event, it shall be “deemed to have begun on the first day the effect of Force Majeure prevents performance, non-performance, or the availability of services, insurance or required approvals essential to Closing.” Once established, “[a]ll time periods affected by the Force Majeure event, including Closing Date, will be extended a reasonable time up to to 7 days after the Force Majeure event no longer prevents performance under [the contract].” Finally, should the Force Majeure event continue to prevent performance more than 30 days beyond the original closing date, then either party may terminate the contract by delivering written notice to the other party, and the buyer would be entitled to receive a refund of the escrow deposit, with both sides being released from all further obligations under the contract.
Am I covered?
If an event occurs that prevents performance, it should be determined if that event is one that is covered by the force majeure clause. If it is, then the obligation of performance may be delayed or ultimately excused completely. If the parties disagree on whether the event that occurred is one that is identified within the force majeure clause, it will be up to a court of law to determine this. This can be costly and time-consuming for the parties.
If you are considering entering into a real estate contract, or if you are involved in a real estate transaction and a force majeure event occurs, it is important to consult with a real estate lawyer. Joseph Battaglia is a Board Certified Specialist in the area of real estate law, and will be able to help you understand your rights and options under the contract and the law.
- Both the standard and the AS IS FAR/BAR contracts contain identical provisions ↩︎