COVID-19’s Impact on Current Real Estate Agreements; Could you be in default?

March 29, 2020

If you have an outstanding real estate agreement, please consider whether the time deadlines it contains are realistic to meet due to the coronavirus.

Buyers under contingent agreements
You may be a buyer under a contingent agreement. You thought a year would be plenty of time to obtain the municipal approvals, utility approvals and permits, get your financing in place and get to closing. You might want to reconsider that in light of current circumstances. March saw the cancellation of township and borough meetings, municipal authority meetings and zoning hearing board meetings almost uniformly across the board. April is looking like many will have remote meetings although their offices will still be closed. Staff meetings to hash out details are unlikely. Maybe that will happen by May.

If you lose 3-6 months of your development time, you may be in default of your agreement.

What can you do?

  1. Have your agreement reviewed! It seems that is always the answer. There may be provisions that permit you to extend your agreement and performance dates and deadlines in the case of acts of God, pandemic or governmental orders. You may have built in extensions you can exercise. You may be required to give notice of claims of force majeure within a certain period of the act occurring. There are other contract concepts that may help your situation.
  2. After reviewing the agreement and determining the best course of action you can call the other party (social distancing) or your attorney can write an appropriate letter. Your counterpart may be inclined to grant some relief in the midst of the uncertain, and still worsening pandemic.

Sale and Purchase of Improved Lots
Another type of real estate agreement that may lead to current issues is one for the sale and purchase of improved lots. Typically, these documents contain deadlines for improved lots to be available for purchase and contain a schedule for the purchase of the lots. Based on Governor Wolf’s shut down order, it is unlikely that these deadlines can be met. What to do? Review the agreement, formulate a strategy and contact the other party.

Sale and purchase of improved property with existing structures
Even agreements for the sale and purchase of improved property with existing structures may be delayed. You likely cannot timely conduct your due diligence inspections or obtain municipal inspections. The recorder of deeds offices are functioning differently in different counties. Most are operating with limited staff and are on reduced work days. Sometimes we can arrange for real estate closings to be handled remotely. It is important to review your agreement. Make inquiries early about the closing process and start preparing early. Everything is taking more time to get done.

Our attorneys and staff are still working. We are keeping on top of the rapid changes going on. Legislation is being introduced daily to help businesses keep running. We are happy to discuss your particular situation and review your agreement. Please contact Merle Ochrach at (215) 661-0400 or MOchrach@HRMML.com or any other member of our real estate team for guidance as to what you should do.

Questions Every Business Must Ask

Q. Has your business recently reviewed its legal structure to determine whether it is set up in the most advantageous manner for legal and tax purposes, considering recent developments and changes in the law?

Q. Do the owners of your business have a current, updated buy-sell agreement which controls how ownership interests in the business are to be transferred in the event of an owner’s death, disability or termination of employment?

Q. Have the owners of your business developed a succession plan to define how ownership and authority will transition upon the death or retirement of the present owners?

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