COVID Impact on Contracts & Conveyancing

How has Coronavirus affected contracts and conveyancing?

The pandemic, COVID-19, has affected all aspects of our lives. There is a physical, emotional and financial cost. We have also found that this pandemic has imposed itself on some aspects of the work that we do on behalf of our clients.

This is seen, particularly, in the realm of contracts and conveyancing. As to any contract, the COVID-19 pandemic may:

1. Not affect the contract at all;

2. Affect the contract so that one or both parties are unable to fulfil their obligations which may trigger:

1. A force majeure clause; or

2. The doctrine of frustration.

The force majeure clause, often referred to as the “act of God” provision, provides that if due to such an unforeseen event, including a pandemic for example, the contract cannot be fulfilled, there is no liability imposed upon the party who had been charged with the obligation affected by the act of God. Depending on the wording of the force majeure provision, some contracts may allow the parties to terminate the contract; other contracts provide an extension of time to either of the parties to fulfil their obligations.

The doctrine of frustration is worthy of consideration. Where there is no provision for a force majeure in the contract, and where a contractual obligation imposed on one of the parties is incapable of being performed because of circumstances which are now different than when the contract was entered into, it is arguable that the contract has been frustrated. Should a contract become frustrated, the parties are released from their obligations as from that time. It does not render the contract void ab initio, that is as from the outset.

In the event that the COVID-19 pandemic does not affect the obligations of the parties to a contract, as would generally be the case, then there will be no alteration to the responsibility of the parties to fulfil their obligations under the contract.

With respect to conveyancing, the imposition of the pandemic can be identified in two particular areas.

In relation to the purchasing of a home, enquiries have been made by clients as to whether the purchaser can compel the vendor to clean and/or disinfect the home prior to settlement. Regrettably the short answer is no. The standard contract for the sale and purchase of land in NSW does not refer to cleanliness. Generally, contracts note that the properties are to be in the same condition and state of repair as at the date of exchange, or the date that the purchaser entered into the contract, subject to fair wear and tear.

The impact of the COVID-19 pandemic would also be relevant when dealing with third parties who are intrinsically involved in the sales process. This would include real estate agents, the solicitors acting for the parties, removalists and banks for example. Our experience has been that some banks have had difficulties in meeting their obligations to effect settlement of a conveyance which has caused delays, with one instance of a bank outsourcing their operations overseas.

The sale of a property the settlement can be affected by the COVID-19 pandemic if there is a tenant. With respect to tenants, generally speaking, the settlement of the sale is usually completed in one of two ways. The sale of the property can proceed with the contract marked “with existing tenancy” and a full copy of the tenancy agreement attached. Alternatively, should the purchaser wish for vacant possession, the owner of the property can issue a notice to vacate.

The question now arises as to whether any additional protection is afforded to the tenant with the impact of the COVID-19 pandemic and the Government’s response to same.

On 13 April 2020 the Government confirmed the implementation of a 60-day moratorium on evictions for rental arrears where the tenant is in financial hardship due to COVID-19. There is also provision for a longer six-month restriction on rental arrears evictions for those who have been financially disadvantaged by COVID-19.

In order to be afforded the 60 day stop on evictions and the longer six-month restriction the landlord, or in this case the seller of the property, must demonstrate:

1. One or more rent-paying member of a household having lost their employment or income, or a reduction in employment income, due to COVID-19 business closures or stand down; or

2. One or more rent-paying member of a household have had to stop working or reduce work hours due to illness with COVID-19 or due to COVID-19 carer responsibilities for household or family members; and

3. The above factors result in a household income (inclusive of any Government assistance) that is reduced by 25% or more.

These changes have not as yet been formally implemented by the Government but same are likely to occur by 17 April 2020.

These are matters that would be relevant to any seller of property that is subject to a tenancy if it is the intention of the parties to sell the property with vacant possession. The implementation of these additional protections afforded to tenants may serve to delay the sales process.

For all your commercial law and conveyancing needs, Brydens Lawyers can assist. Whether it be a commercial dispute, preparation of contracts for sale of property, leases or other documentation, Brydens Lawyers can provide expert legal advice and representation in all aspects of commercial law and conveyancing. WE DO commercial law and conveyancing – contact Brydens Lawyers on 1800 848 848 or visit us at brydens.com.au