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You’re ready to close escrow, but no insurance company will write a fire policy because of recent events in your area. Can’t happen? It has, and will again. Due to the recent fires in San Diego county, escrows are not closing. Will the buyer be in default and lose the deposit, or worse yet be sued for damages or specific performance? Is the time to close extended, or is the contract terminated?
Do you need a lawyer, or should you rely on other experienced investors for advice?
If you’ve been in the real estate investing game long enough to have experienced this, or other bizarre events such as no lenders willing to make loans, no title companies willing to issue policies, or the recording office unable to record deeds, you should know when you can and can’t rely on a standard clause in most contracts which gives you an out—the force majeure clause. Here’s a sample:
“No Party shall be liable for any failure to perform its obligations where such failure is as a result of Acts of Nature (including fire, flood, earthquake, storm, hurricane or other natural disaster), war, invasion, act of foreign enemies, hostilities (whether war is declared or not), civil war, rebellion, revolution, insurrection, military or usurped power or confiscation, terrorist activities, nationalization, government sanction, blockage, embargo, labor dispute, strike, lockout or interruption or failure of electricity [or telephone service], and no other Party will have a right to terminate this Agreement under Clause 19 (Termination) in such circumstances.”
“Any Party asserting Force Majeure as an excuse shall have the burden of proving that reasonable steps were taken (under the circumstances) to minimize delay or damages caused by foreseeable events, that all non-excused obligations were substantially fulfilled, and that the other Party was timely notified of the likelihood or actual occurrence which would justify such an assertion, so that other prudent precautions could be contemplated.”
Maybe your force majeure clause should also mention that if the commercial unavailability of loans, fire insurance, or title insurance at the time of closing persists for more than 30 days, the parties may rescind the agreement.
Judd Kessler, Publisher, Creative Real Estate Magazine
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