What Are Force Majeure Provisions in Real Estate Contracts and Leases?

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  2. What Are Force Majeure Provisions in Real Estate Contracts and Leases?
What Are Force Majeure Provisions in Real Estate Contracts and Leases
Real Estate

Both real estate contracts and leases commonly contain force majeure provisions, as do other business contracts. Since these provisions can substantially affect the rights of all parties to the real estate transaction, everyone must understand how this provision works, when it becomes operative, and the consequences it may have when triggered.

An Arizona real estate lawyer can assist you if you need legal counsel concerning your real estate contract or lease. Our law firm also provides experienced legal representation and advocacy if a real estate dispute occurs in the context of a transaction, whether it involves a purchase or lease agreement.

Understanding Force Majeure Contract Provisions

Force majeure provisions allow the parties to the contract to be relieved of their legal duties and obligations under the contract when certain events beyond their control occur. The triggering events in a force majeure provision vary from one contract to another, but they usually include natural disasters, weather-related events, and other catastrophes, such as the following:

  • Natural disasters, which may or may not be specifically defined to include:
    • Tornadoes
    • Hurricanes
    • Earthquakes
    • Floods
    • Wildfires
    • Volcanic eruptions
  • Pandemics, epidemics, and government-ordered quarantines;
  • Declarations of war, terrorist attacks, and civil unrest;
  • Strikes;
  • Changes in the law that make completion of the contract impossible;

Until the past few years, contracts were not likely to contain references to pandemics and illness-related emergencies. However, the COVID-19 pandemic caused many businesses and individuals to change their force majeure clauses to include such provisions.

Typically, a force majeure clause requires the party invoking the clause to notify the other party promptly that they will not be completing the contract. In some cases, the party must notify the other party within a set number of days. Still, in other cases, they must do so within a reasonable amount of time from the occurrence of the triggering event. The contract also may require the party to give a particular form of notice to the other party, such as notice in writing.

Force majeure clauses also may contain “catch-all” provisions such as any “acts of God” or “acts that are beyond the parties’ reasonable control.”

Determining Whether an Event Triggers the Force Majeure

Predictably, force majeure clauses have often become the subject of litigation simply because these clauses determine whether a party can legally break the terms of a contract. In these disputes, the non-breaching party wants the other party held to the terms of the contract, and the breaching party wants to be released from the contract due to the force majeure clause.

Whether an event constitutes a force majeure event within the meaning of a particular contract is very fact-specific. The court will consider the following in determining whether the force majeure clause applies:

  • Whether the event is specifically listed in the force majeure clause or any other provision in the contract;
  • Whether the event that led to the nonperformance of the contract was foreseeable by the parties;
  • Whether there is a causal event between the event and the nonperformance; and
  • Whether the breaching party can’t perform the contract terms as agreed.

The breaching party, or the party who wishes to break the contract, must prove that the event falls within the force majeure clause. That party also must prove that the event was beyond the control of either party and was not something that either party had assumed responsibility for in the contract. Finally, the party will need to show that there are no reasonable steps that it can take to avoid or minimize the impact of the event or its consequences, and, as a result, performance of the contract is impossible.

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