Real Estate Purchase and Sale Contracts in 2021: New Closing and Transaction Risks During the Downturn

Description

The current economic climate and risks of a second wave of shut downs causing limited access to government offices and other logistical challenges that create issues for real estate closings that counsel must address moving into 2021 and beyond.

As parties to real estate transactions assess both new—and continued—risks presented by the COVID-19 crisis and the subsequent economic downturn, they should consider the potential impact of issues related to the timing of closings. Whether to close on a “gap” or require a deed-recordation closing has become a more significant issue. Further, parties should consider the implications of "time of the essence" clauses as they structure their transactions, negotiate with counterparties and prepare for closings. Typical closing conditions, including tenant estoppels and dating down representations now more likely can throw a wrench into closings. Moreover, the economic fallout from the COVID 19 crisis has spurred some buyers to demand additional conditions to closing based on material adverse changes, which some sellers see as problematic.

Counsel must determine whether a non-performing party is in default for failing to close either due to strict enforcement of timing or an unwillingness to close. A non-performing party may assert defenses of impossibility of performance, frustration of purpose, violation of good faith and fair dealing, or force majeure in addition to claiming a failure of closing conditions.

Additionally, sellers, buyers, and lenders typically rely on third-party providers in the course of a sale/financing transaction. Not all third-party providers whose services are necessary to perform obligations under a transaction will be classified as essential workers. Counsel must check applicable and evolving ordinances and contact those providers directly to determine whether services are available in-person or remotely to proceed. Counsel must also assess how deadlines, including, but not limited to, filing deadlines, IRS Section 1031 deadlines, and due diligence deadlines for inspections, title, and survey, may be impacted.

Our expert panel will provide practical tips for drafting, negotiating, and defending positions for sellers, buyers and lenders in an environment mired with uncertainty from a myriad of causes, which continue to surprise as time goes on.

Listen as our expert panel provides practical tips and procedures for timely and successful closings in an environment limited by both the COVID-19 crisis and the economic recession that followed.