How can I protect my Development project from COVID-19?

The health and economic impacts of the Coronavirus epidemic will assuredly touch virtually every corner of the World before it is brought under control. And while the virus has many fearing for their health, it is casting a much longer and darker shadow over many sectors of our national and global economies.

As voluntary and involuntary quarantines have been imposed, most for several weeks, there has been a measurable and significant decrease in economic output and consumption. Factories have been shut down, workers have been unable to go to their places of employment, and travel of all forms has been highly restricted or avoided. And it is anticipated that these impacts on the American economy will only be magnified over the coming weeks and/or months, as we grapple with containing the outbreak and contagions.

As a result, businesses are having a difficult time operating at normal levels. This begins with the largest companies and moves on down to the smallest. The real estate industry has not been immune, with contractors already seeing materials caught up in ports and developers becoming increasingly concerned with delivery times. [1]

With global supply levels severely tightened, transportation options limited and output drastically reduced -- with no obvious end in sight -- many companies are turning to legal counsel to review their contracts for interpretation of “force majeure” provisions. A force majeure provision, oftentimes referred to as an “Act of God” provision, is one which may permit a party to the contract to delay deliverables or otherwise modify certain provisions of the contract due to Acts of God, or other such events outside of its control, without risk of default.

In the real estate world, these force majeure provisions are commonly found in new construction contracts, both residential and commercial. Developers, particularly of larger projects, are already having difficulty getting supplies delivered on time.  Factories in certain parts of China have been shut down for extended periods, while other areas of the world have pulled back production levels, hoping to minimize any spread of the disease. These interruptions will lead directly to delays in delivery of the developers’ real estate projects. How long those delays will be is anyone’s guess at this time.

Developers need to carefully review the force majeure provisions of their contracts, both on the buy side and the sell side. They need to know what their rights are if their vendors issue force majeure notices to them. And they need to ensure that they preserve their rights to similarly delay delivery of their construction projects by sending appropriate notices and identifying the proper force majeure cause for doing so.

As well, buyers under contract or considering going under contract for new construction projects should carefully analyze those provisions and see whether, and to what extent, they may apply, whether the buyer has rights to cancel at any point based on trigger of a force majeure notice and/or whether the buyer has rights to certain modifications of the contract in remedy.

For three decades, Erwin Law has been protecting the interests of its real estate clients.  Our team of lawyers has dealt with a number of global crises, including the Great Recession, the SARS epidemic and the H1N1 pandemic, and is at the ready to provide counsel on interpreting and employing force majeure provisions in the face of the pall of Covid-19. For trusted and experienced guidance through these, and all your real estate issues, call us at (773) 525-0153, or visit www.erwinlawfirm.com.

[1] See Bisnow, February 20, 2020  bisnow.com/national/news/construction-development/coronavirus-construction-impact-103085.