COVID-19 has disrupted and continues to disrupt the real estate closing process. There are several addenda floating around which attempt to deal with the issues which result from the coronavirus. Most (1) extend the closing date if the closing cannot be performed due to a virus quarantine or a closure and (2) provide for contract termination if the buyer loses income or a job due to COVID-19.
These addenda address only a closing delayed due to a quarantine or closure and do not address the broader issues such as the inability of an essential third party to perform its obligations which could also make the closing impossible. For instance, if the selected title company is open for business but the lender, surveyor, attorneys for the buyer, inspection company, etc cannot perform, the buyer will remain in default if he or she fails to close.
We have prepared an addendum to address these issues. Our addendum states that “…if either party cannot perform that party’s obligations because of a Pandemic Related Issue, as that term is defined below, all dates in this Contract, including but not limited to the Effective Date and the Closing Date, will be tolled or suspended for ___ days.”
What this means is all dates and obligations are suspended for the agreed upon number of days. For instance, if the contract allows the buyer 30 days to obtain a loan and this provision is invoked fifteen days into the loan approval process, then all dates would be extended for the agreed time. Assume the parties agreed upon a thirty-day suspension period. Then all activity under the contract would stop for thirty days. The buyer would still have fifteen days left in the thirty-day financing approval period. If there was a ten day option period and no inspector could be found and this provision was invoked two days into the inspection period, all dates would be extended and after the suspension period ended, the buyer would have eight days left in the option period.
This approach is fairer to all parties. If you just extend the closing date, then the buyer must continue to try to get a loan, survey, etc when that may not be possible. If for instance, he cannot get a survey, if we just extend the closing date, once the closing extension is up, the buyer must close and has waived the right to obtain a survey.
If you are interested in using the addendum we prepared, you can find it here.