If there is a hurricane or other natural disaster outside the control of the parties, the first provision of your contract to look at is the “force majeure” provision, which is French for “superior force.” A force majeure provision is a common clause in real estate contracts that refers to unforeseeable circumstances that prevent the parties from fulfilling their obligations in the contract. The force majeure provision generally frees both parties from liability under the contract because the circumstances triggering the force majeure provision are outside the control of the parties. Examples of circumstances that can trigger a force majeure provision include a terrorist attack, war, epidemic, fire, hurricane, or other natural disaster.
The force majeure provision in a real estate contract will usually automatically extend the contract for a few days. For instance, Section 18(G) of Florida’s “AS IS” Residential Contract For Sale And Purchase provides that certain dates, including the closing date, will be automatically extended for up to seven days after the force majeure event no longer prevents performance of the contract. In addition, either party may terminate the contract by written notice if the force majeure event continues to prevent performance of the contract for more than 30 days beyond the closing date.
The ”risk of loss” provision of the contract should be the next provision to review. This provision will indicate which party is responsible for damage caused to the property by the force majeure event. Section 18(M) of Florida’s “AS IS” Residential Contract for Sale and Purchase covers risk of loss. Section 18(M) states that if the property was damaged by a force majeure event, and the cost to restore the property does not exceed 1.5% of the purchase price, then the cost is the seller’s responsibility. If the seller does not restore the property prior to closing, the seller must escrow a sum equal to 125% of the estimated cost to complete the restoration. If the cost of restoration exceeds 1.5% of the purchase price, then buyer has the option to either close on the property along with 1.5% of the purchase price or terminate the contract and receive a refund of the buyer’s escrow deposit, releasing buyer and seller from all further obligations under the contract.
If there is no risk of loss provision in the contract, then the responsible party will be determined based on common law, which may place the responsibility on the buyer depending on the situation. Most risk of loss provisions in contracts shift the responsibility from the buyer to the seller because the buyer does not own the property during the contracting period.
If a hurricane or some other unforeseeable event occurs during the term of your contract, make sure to review the contract and speak with your attorney or title company about the force majeure and risk of loss provisions to determine how to proceed with your contract.