While real estate activity has slowed down significantly as the coronavirus takes hold, it hasn’t screeched to a halt completely. There are still some buyers out there who are willing to purchase homes based on virtual tours or who have already identified the location they want to live in and if a home comes on the market that was built recently (which suggests it is in good enough condition) they might waive the option to visit it in person. But even though there is still some demand, the economic impact of coronavirus is still too much of an unknown for some buyers to fully commit to buying a home. As a way to mitigate the risk, but still keep some activity flowing, many state real estate associations have released ‘corona clauses’ to be added to existing real estate contracts.
In most cases these allow for extensions of dates for escrow or settlement due to ‘unforeseen circumstances’ and if the unforeseen circumstances lead to the dates being missed there is an escape clause that lets either party walk away from the contract. As one example, the addendum for the Arizona Association of REALTORS states ‘upon the expiration of any automatic or agreed extension, either party may terminate this Agreement in writing without any further liability to the other party, and the Earnest Money shall be released to Buyer.’
Even though most existing real estate contracts already contain a ‘force majeure’ clause, state real estate associations are adding ones that relate specifically to coronavirus since this is such an unusual case.
Matthew Troiani, vice president of professional development & chief counsel for the Northern Virginia Association of REALTORS, explains the three different reasons behind adding a dedicated COVID-19 addendum. Most importantly, “Force majeure as a concept has never been tested in the Commonwealth of Virginia, to my knowledge, relating to anything like an epidemic, pandemic [or] governmental restrictions on movement…What we wanted to do was a specific clause that gave buyers and sellers a notion of that they were being protected. We specifically tied it to epidemics, pandemics [and] government closures.”
He also adds that while many states are still able to process contracts using digital solutions, it is possible this could come to a halt if the pandemic becomes even more severe. “While we are not there yet, if for some reason it does get to the point this completely shuts down the ability to interact…the parties are not going to be held in default.”
A final reason is simply it can help prevent an agreement from falling through due to uncertainty. “We wanted to facilitate a discussion, and hopefully agreement, amongst the parties. [To] keep the contract alive by extensions of deadlines and the settlement date,” said Troiani.