Real Estate contracts, impact and consequences of Covid-19?

30 Mar, 2020

Dear friends, colleagues and clients,

This Covid-19 situation could lead to several legal conflicts. We received hundreds of questions concerning the impact of the actual situation on the procedures of buying and selling properties. We will try to clarify the most common themes.

As we mentioned in previous blogs, the Law in exceptional situations not foreseen by the parties in a contract, allows the possibility of modifying legal agreements based on a change of circumstances that is beyond the control of the parties such as this state of alarm.

What if you have signed a sales or a purchase contract, a deposit or o reservation agreement to be fulfilled during this period of state of alert?

On the one hand, the seller has logical expectations that the contract and the agreed payments will be fulfilled. On the other hand, the personal circumstances of the buyer have changed and these changes might have impact on fulfilling the legal agreements of the contract.

Not only economic aspects but also logistic elements can cause the inability to fulfill the legal agreements. For example, in case that only the signing of the public deeds is pending but there are no flights available, no power of attorney can be granted because the notarial services are suspended in your home country,…

Which solutions does the law propose for real estate contracts  affected by Covid-19?

Concerning the monetary debts, the payment of agreed sales price, for this aspect “force majeure” is not automatically applicable. Although it is clear that today nobody knows how the actual situation will influence the assessments of Law, when implicated one day. In other words, in theory, nothing prevents the seller from demanding the payment of the agreed price and the fulfillment of the contract, if the money was available and the decision to buy signed, it should be executed. 

Nothing is less true then saying that the expectations of both parties are affected, the seller who was expecting to receive an amount of money; and the buyer, to a greater or lesser extent and without knowing for how long, has to deal with the consequences of an unsure economic future.

How to act then? 

Of course, flexibility between the parties is essential. The most easy solution would be for both parties to agree on some kind of modification that extends the term of the original contract, with an agreement on a partial payment which allows the term of the contract to be extended until the actual situation is clarified. 

Strictly applying the conditions of the contract or demanding its fulfillment might be theoretically possible, but we have to take into account that imposing contracts which are impossible to fulfill will only lead to further conflicts and legal complications.

Judges will be attentive for these aspects and they will observe the attitude of both parties, so that compliance on the one hand and the application of criminal clauses on the other hand will be moderated by them. 

It is also important to mention that in some cases we might be confronted with improper and abusive use of these conditions, therefore we have to be attentive for actions or behaviour in contradiction with the principles of good faith.

Informing the other party about your situation or/and proposing flexible solutions will be seen as a positive element to avoid resolutions and conflicts with no further end.

LAJARES LAW OFFICES can help you. If you need some general advice, you can request us a free model of incident communication. In case you want us to study your specific situation, send us the corresponding documents so we can offer you accurate professional advice.

Good communication of your intentions, following the principles of good faith, to the other party helps to redirect many conflicts in Law. Today, we believe that the current circumstances are temporary, although we still do not know how the future will pan out.

Does the law allow a cancellation of the original contract?

In case you want to obtain a termination or cancellation of the original contract, it has to be legally justified. We do offer professional assistance to avoid further legal conflicts.

LAJARES LAW OFFICES we will be very attentive to the options that the law offers us and to the application of new regulations which will provide us important interpretative criteria.

As you already know, ALL YOU NEED IS LAW.

Protect yourselves and your loved ones.