The impact of COVID-19 is unprecedented and untested in the area of residential contracts. There are potential arguments for buyers to delay or even cancel contracts, but nothing is certain. Whether an argument will be successful will depend on many factors, including things that are specific to the circumstances of your contract and the situation of both the buyer and seller.
If you are a seller, we recommend touching base with the buyer to make sure everything is OK.
If you are a buyer who is having difficulty settling, we recommend:
- Let you lawyer know.
- Have your contract reviewed.
- Get advice on all available options
Reviewing your contract
Your contract is likely to be an REIQ standard form document. In this case, there is provision for a ‘delay event’ which might allow the settlement to be delayed until the event is over. However, it is uncertain as to whether COVID-19 will be a ‘delay event’.
If your contract is not the REIQ standard document, it would be prudent to determine whether your contract has a ‘force majeure’ clause, and to look at how that clause works in your contract.
Force majeure clauses operate to relieve a party from being required to perform their obligations under the contract as a result of an event that is outside of their control. Examples of the acts that force majeure clauses contemplate are ‘acts of God’, ‘national emergencies’ and ‘government action’. Arguing a force majeure clause is triggered will be challenging as the party attempting to rely on it bears the burden of proof. Additionally, they will have to establish COVID-19 has actually prevented them from performing their obligations, rather than merely subjecting them to a financial loss.
In the absence of a force majeure clause, parties may consider looking at the doctrine of frustration to discharge their contractual obligations. Frustration can only be relied on if the circumstances in which the performance of an obligation is required are now radically different from those originally conceived by the contracting parties. A party suffering unexpected losses or financial hardship are generally insufficient grounds for frustration. The test for frustration is even higher than force majeure, and often requires performance being physical impossible, such as the subject matter of the contract being destroyed.
It is still very early days in assessing and understanding the impact of COVID-19 on contracts, and we are monitoring the situation closely. What options are available to you depend heavily on your contract and your circumstances.
If you have any questions regarding COVID-19 impacts or if you need further information, please contact us.