By: T.R. Smith, Esq.
As we enter Hurricane Season in Florida, it’s important to understand the terms and conditions of the Florida Realtors/Florida Bar (FAR/BAR) Residential Contract for Sale and Purchase that may play a major role in the event of a strong storm. The two most critical provisions are the “Risk of Loss” and “Force Majeure” clauses, which address unforeseen events that can impact real estate transactions.
Risk of Loss: Allocation of Property Damage
The “Risk of Loss” clause, found in Section 18(M) of the FAR/BAR contract, delineates the responsibilities of buyers and sellers when a property sustains damage while under contract but before closing. The risk of loss remains with the seller until closing occurs. Here’s how it works:
Minor Damage (≤1.5% of Purchase Price): If the cost to restore the property to the condition it was in at the time of signing the contract is less than or equal to 1.5% of the purchase price, the seller is obligated to repair the damage prior to closing. If repairs aren’t completed by the closing date, the seller must escrow 125% of the estimated repair cost, ensuring funds are available for post-closing repairs.
Significant Damage (>1.5% of Purchase Price): If the restoration cost exceeds 1.5% of the purchase price, the buyer has two options:
1. Accept the property “as is” and receive a credit equal to 1.5% of the purchase price; or
2. Terminate the contract and receive a full refund of the deposit.
This provision ensures that buyers are protected from significant unforeseen damages, while sellers have clear obligations to protect the condition of the property and address minor damages.
Force Majeure: Addressing Unforeseen Events
Section 18(G) of the FAR/BAR contract covers “Force Majeure” events—extraordinary circumstances beyond the control of the parties that prevent contract performance. Examples include: (i) natural disasters (e.g., hurricanes, floods, earthquakes); (ii) acts of terrorism or war; (iii) governmental actions or mandates; and (iv) epidemics and pandemics
When a force majeure event like a hurricane or flood occurs, there is an automatic extension of all contract deadlines, including the closing date, inspection period, and loan approval period. Such deadlines are extended for a reasonable time, up to seven days after the event no longer prevents performance. Further, if the event continues to prevent performance more than 30 days beyond the original closing date, either party may terminate the contract by delivering written notice to the other party. In such cases, the buyer is entitled to a refund of the deposit and both parties are released from any further obligations under the contract.
It’s important to note that the non-performing party must demonstrate that the Force Majeure event genuinely prevents performance and that they have made reasonable and diligent efforts to overcome the obstacle.
Practical Implications for Buyers and Sellers
Understanding these provisions is crucial for both buyers and sellers:
Buyers: Buyers are entitled in inspect the property after the force majeure event to determine the extent of any damage. In the event of damage, assess whether the cost falls within the 1.5% threshold and decide accordingly.
Sellers: Maintain the property in good condition until closing and be prepared to address any damages promptly. In the case of a force majeure event, communicate transparently with the buyer and take necessary steps to resume performance as soon as possible.
Conclusion
The “Risk of Loss” and “Force Majeure” clauses in the FAR/BAR contract provide a framework for addressing unforeseen events in real estate transactions. By understanding these provisions, parties can navigate challenges effectively and protect their interests. For personalized guidance, contact your trusted real estate attorneys. It really makes a difference who you work with.
