As Hurricane Irma grew in strength in the Caribbean and started to approach Florida last September, I was boarding a plane from Tampa to Birmingham for a meeting. I received several emails and calls from a colleague related to an urgent client issue, and I quickly returned his call before we departed. A new client was under contract to purchase commercial real estate in Florida and the closing date was two days away, but the client was unable to obtain insurance because the insurance companies had stopped binding insurance due to the approaching hurricane. The client was financing the acquisition, and the client's lender certainly would not fund closing without the required insurance in place. The client's contract did not address this issue and did not include a force majeure provision; the client was anxious to find out whether the failure to close because of the inability to bind insurance would be a default that would put the deposit at risk. The client wondered what, if any, options were available to extend closing as a result of the inability to obtain insurance. Certainly the seller would be reasonable and agree to extend closing until insurance could be bound, but what if he wouldn't? Rather than making legal arguments under applicable law and negotiating with the seller, the best case scenario would have been for the client's purchase and sale agreement to expressly address this situation.

This is an obvious concern for purchasers of commercial real estate in Florida when the closing could occur during hurricane season, but this risk also applies to purchasers of real estate throughout the United States. Insurance companies have moratorium binding guidelines whereby they temporarily halt writing new policies and making changes to or raising limits on existing policies for a certain period of time. These binding restrictions typically apply during natural disasters such as hurricanes, tornadoes, flooding and wildfires. Insurance companies do this to avoid paying for immediate and highly probable claims because insurance companies don't want to write a policy on a business that has an increased likelihood of being ruined by a hurricane or a flood. The guidelines vary among insurance companies. Although the restrictions are not typically statewide, in Florida, the rule is generally that no application for new coverage or endorsement for increased coverage may be bound, written or issued, or monies received, regardless of effective date, when a tropical storm or hurricane watch or warning has been issued by the National Weather Service for any part of the state of Florida. Once the threat passes, insurance companies lift the binding restrictions and allow new policies to be issued and limits to be adjusted.

So what happens when one of these uncontrollable events occurs, your insurance is not bound and your closing date falls within the moratorium period when insurance companies will not bind insurance? In Florida, the form “As-Is” Residential Contract for Sale and Purchase that has been approved by the Florida Realtors and the Florida Bar (the FAR/BAR Contract) specifically addresses this concern for residential purchasers in both a force majeure provision and an extension of closing date provision. The extension of the closing date provision reads as follows:

If extreme weather or other condition or event constituting “Force Majeure” (see Standard G) causes: disruption of utilities or other services essential for Closing, or Hazard, Wind, Flood or Homeowners' insurance, to become unavailable prior to Closing, Closing shall be extended a reasonable time up to three days after restoration of utilities and other services essential to closing, and availability of applicable Hazard, Wind, Flood or Homeowners' insurance. If restoration of such utilities or services and availability of insurance has not occurred within __________(if left blank, then 14) days after Closing Date, than either party may terminate this Contract by delivering written notice to the other party, and Buyer shall he refunded the Deposit, thereby releasing Buyer and Seller from all further obligations under this Contract.

Standard G of the FAR/BAR Contract reads as follows:

1. Force Majeure: Buyer or Seller shall not be required to perform any obligation under this Contract or be liable to each other for damages so long as performance or nonperformance of the obligation is delayed, caused or prevented by Force Majeure. “Force Majeure” means: hurricanes, earthquakes, floods, fire, acts of God, unusual transportation delays, wars, insurrections, acts of terrorism, and any other cause not reasonably within control of buyer or seller, and which, by: exercise of reasonable diligent effort, the nonperforming party is unable in whole or in part to prevent or overcome. All time periods, including closing date, will be extended for the period that the Force Majeure prevents performance under this contract, provided, however, if such Force Majeure continues to prevent performance under this contract more than 14 days beyond closing date, then either party may terminate this contract by delivering written notice to the other and the deposit shall be refunded to buyer, thereby releasing buyer and seller from all further obligations under this contract.

While these provisions in the residential FAR/BAR contract are very broad and would not likely be agreed to by a sophisticated commercial seller, a toned down force majeure provision or extension of closing date provision similar to the following is a reasonable request that should adequately protect a commercial purchaser's interests:

Notwithstanding anything to the contrary in this agreement, if, on the closing date, purchaser is unable to bind property and casualty insurance for the property solely because of the existence of extreme weather or other condition or event constituting Force Majeure, Purchaser may, by written notice to seller, adjourn the closing until the date that is three business days after the date that such condition no longer exists.

By including a provision similar to the foregoing in the commercial real estate contract, purchasers can proactively protect themselves from the risk associated with not being able to obtain insurance on the closing date due to unanticipated events such as a hurricane.

Stephanie Kane is counsel in Bradley's banking and financial services practice group in Tampa. She represents financial institutions on real estate acquisitions, dispositions, financing and leasing. Contact her at [email protected].