Force Majeure Provisions to add to Real Estate Contracts: Do you need one?

 

Generally, a “Force Majeure” clause is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, plague (e.g. COVID-19), or an event described by the legal phrase ‘Act of God’ prevents one or both parties from fulfilling their obligations under the contract.

Before the COVID-19 Pandemic, the standard Contract of Purchase and Sale for real estate contracts in British Columbia did not include Force Majeure provisions.

Realtors, buyers, and sellers now need to consider the use of such provisions within these contracts.

The events that trigger the Force Majeure clause must be clearly defined in the clause. For example, it may not be sufficient to simply reference the phrase “COVID-19”.  It is suggested that more needs to be stated, such as:

“In this contract, a Force Majeure event is deemed to have occurred where, because of COVID-19, any of the following events make it impossible to complete a party’s obligation under the contract:

  • The closure of government offices including without limitation the Land Titles Office including the inability to register transfer or mortgage documents;
  • The closure of banks and credit unions and the inability to obtain financing, cash, credit or immediately available funds in the form of cashier’s cheques, bank drafts or official credit union cheques;
  • The inability to obtain advice from professional consultants including appraisers and engineers;
  • The inability to provide vacant possession because a tenant cannot be evicted until the Pandemic is over;
  • The closure of law and notary offices and the inability to retain and instruct counsel; and
  • The inability of counsel to close the transaction due to a lack of staff or lawyers conversant with the subject matter of the transaction;”

Such an operative clause will act as a shield for the party affected by the event of Force Majeure so that a party can rely on that clause as a defence to a claim that it has failed to fulfil its obligations under the contract.

An Operative Clause should also specifically deal with the rights and obligations of the parties if a Force Majeure event occurs and affects the transaction. In other words, should the inability to complete the transaction only continue as long as the Force Majeure event continues, following which both parties shall promptly resume performance under the contract as soon as is practicable.

 

The following is an example of an Operative Clause:

  1. Neither party is responsible for any failure to perform its obligations under this contract if it is prevented or delayed in performing those obligations by an event of Force Majeure.
  2. Where there is an event of Force Majeure, the party prevented from or delayed in performing its obligations under this contract must immediately notify the other party giving full particulars of the event of Force Majeure and the reasons for the event of Force Majeure preventing that party from, or delaying that party in performing its obligations under this contract and that party must use its reasonable efforts to mitigate the effect of the event of Force Majeure upon its or their performance of the contract and to fulfil its or their obligations under the contract.
  3. Upon termination of those Force Majeure events that have caused a party to be unable to perform, the party affected must as soon as reasonably practicable recommence the performance of its obligations under this contract.
  4. An event of Force Majeure does not relieve a party from liability for an obligation which arose before the occurrence of that event, nor does that event affect the obligation to pay money in a timely manner which matured prior to the occurrence of that event.
  5. Neither party has an entitlement or liability for:
    • any costs, losses, expenses, damages or the payment of any part of the contract price during an event of force majeure; and
    • any delay costs in any way incurred by either party due to an event of Force Majeure.

 

Heath Law LLP provides experienced legal services to realtors, buyers, and sellers. Contact us via phone or email if you require legal advice regarding a real-estate contract.

COVID-19 – Occupational Health and Safety Policy: Do you have one?

Worksafe BC requires that those employers whose employees are working from home due to COVID-19 should ensure they have a basic Health and Safety Policy.

The Health and Safety Policy should contain an acknowledgment from the employee that he or she understands their role, duties, and responsibilities and that they agree to abide by the Health and Safety Policy.

The employer would also sign an acknowledgment that they acknowledge and are aware of the contents of the Health and Safety Policy.

The Health and Safety Policy should require employees to conduct an assessment of their workplace and report any possible or actual hazards to their manager or supervisor.

If any such hazards are discovered, there should be a plan made by both the employer and employee to ensure the safety of the employee.

The Health and Safety Policy should also specifically refer to the following:

  • The procedure for the employee to evacuate from the home or temporary workplace to a safe location in case of emergency; this can only be done by the employee as the employer should not access the home at this time due to COVID-19.
  • The manner in which the employee is to contact the employer in case of an emergency; identify the contact person of the employer, their office, and cell number and e-mail.
  • A statement from the employer to the employee that the employee working at home should use the same safe workplace practices that are expected from them at work.
  • A statement from the employer to the employee describing the procedure for how an employee should report a work-related incident or injury to their employer; identify the contact person of the employer, their office and cell phone numbers, and e-mail.
  • A statement from the employer to the employee that the employee should be as cognisant at home as they are at work about ergonomics; that the employee should take steps to mitigate the risk of developing a musculoskeletal injury.
  • A statement from the employer that the physical risk factors associated with an employee developing musculoskeletal injury by working at home include without limitation repetition and work posture.
  • A statement by the employer that the employee can learn more about musculoskeletal injury, assess the risk in their home, and actively take steps to reduce the risk by reading the following: https://www.worksafebc.com/en/health-safety/hazards-exposures/ergonomics

 

Heath Law LLP provides a full range of services to employers in British Columbia. If you require assistance contact Heath Law LLP by phone or email.

COVID-19 and Parenting Time: What are your rights for parenting time during a pandemic?

Two recent cases from the Courts of British Columbia have discussed COVID-19’s effects on a parent’s right to parenting time.

In N.J.B v S.F., 2020 BCPC 53 (April 1, 2020) a father began denying the mother parenting time.  His justification for doing so was based on the changed landscape arising from the COVID-19 crisis and the health and safety issues arising from it. More specifically, the father asserted that the mother is unlikely to be able to comply with social and physical distancing measures and other protocols currently recommended by public health authorities.

The facts and procedural history are as follows:

The parents separated in October 2018.

After the parents separated the mother’s parents submitted a report to the Ministry of Children and Family Development (the “MCFD”) regarding the mother being unable to care for the child due to the mother’s mental health, parenting skills, and substance abuse.  This report resulted in the MCFD and the father agreeing not to permit the mother to have any unsupervised access to the child.

Over the next few months, the mother and father attended multiple Family Case Conferences, the first being on February 14, 2019, which made orders allowing for the mother to have supervised parenting time.

On March 24, 2020, the father’s lawyer sent a letter to the mother’s lawyer stating that due to concerns related to COVID-19, the mother would not be permitted to exercise her parenting time.  The father had two reason for refusing the mother parenting time.  First, given the mother’s history of mental health challenges, which appear to result in her fabricating ideas and experiencing delusions, the present COVID-19 crisis is likely to impact her mental health further, and cause her to behave in a manner that will pose a risk to the child.  Second, there are seven people who live in the mother’s home.  The father claimed that the large number of people residing in the mother’s home will increase the child’s risk of contracting the virus.

The Courts Decision:

The Court ordered compliance with the parenting order. The father was unable to point to any concrete concerns about the mother and her family’s lack of compliance with COVID-19 protocols.  His concern appears to be based on the mother’s historical, and likely ongoing, challenges with her mental health which has sometimes manifested in paranoid or conspiratorial ideas.  The court accepted that the mother’s variable mental health gives rise to concern, but that concern has been addressed by the fact that all of her parenting is supervised. The court did not find concerns in relation to the mother are any greater under COVID-19 than they were before COVID-19, and as such, ordered compliance with the parenting order.

In another case

In SR v MG, 2020 BCPC 57 (April 7, 2020) a father was denying a mother her agreed to parenting time.  The father’s reason for denying parenting time was due to the mother being a licenced practical nurse.  He believed that her exposure as a nurse to the COVID-19 virus would create undue risk for their child.

In considering a multitude of factors, the Court found the mother to be entitled to her parenting time despite the father’s concerns.  While there was some risk that the mother would catch the virus, it was appropriately mitigated by the mother abiding by the precautions placed upon all front-line workers.

The Court noted that if the child was particularly vulnerable, it would not expose the child to even the slightest risk.

Conclusion from the two cases:

Using COVID-19 as a rationale for not complying with parenting time orders is not prima facie accepted by the Courts.  The parent withholding the child from the other has to supply the Court with concrete evidence which shows that the child is either particularly more vulnerable to COVID-19 or the other parent has created undue risk for the child by disregarding COVID-19 protocols.

 

If you think you may have cause to deny a parenting order due to safety concerns during Covid-19, or if your parenting time is being denied and you would like to discuss your options, call Heath Law LLP or email us.

The tenant/landlord relationship is based on the tenant living up to certain obligations such as paying rent and keeping the rental unit in an acceptable condition and the landlord having the ability to evict the tenant if they fail to live up to those obligations.  However, due to COVID-19, a tenant may be unable to adhere to certain obligations that are expected of them.  Do landlords still have the ability to evict tenants during the State of Emergency caused by COVID-19?

Normally, landlords have the ability to evict a tenant for a variety of reasons pursuant to the British Columbia Residential Tenancy Act (the “Act”).  Some of the more common reasons are:

  • Non-Payment of Rent;
  • Damaging the rental unit;
  • Landlord’s use of the rental unit; and
  • Landlord selling the rental unit.

If a landlord wants to evict a tenant, the landlord has to serve the tenant with a Notice to End Tenancy.  After the tenant has received the Notice to End Tenancy, the tenant can dispute the Notice to End Tenancy within a certain timeframe which is prescribed by the Act.  If the tenant does not dispute the Notice to End Tenancy, the tenant is deemed to have accepted that the tenancy will end after the notice period provided in the Notice to End Tenancy has elapsed.

Due to COVID-19, the Government of British Columbia (the “Government”) has created special rules regarding the eviction of residential tenants.  One of these rules concerns the validity of Notice to End Tenancies given by landlords.  If the Notice to End Tenancy was given on or after March 30, 2020, it can be ignored by the tenant as the notice is of no force or effect.  If the Notice to End Tenancy was given before March 30, 2020, the notice is valid and statutory timelines for disputing the Notice to End Tenancy are in effect.

If the tenant does not leave the rental unit after the notice period has ended, a landlord cannot remove a tenant by force.  The landlord must apply to Court for an “Order of Possession”. The Government has stated that Orders of Possession are not being enforced until the State of Emergency has ended except under exceptional circumstances.  Examples of exceptional circumstances include situations where the tenant has:

  • Significantly interfered with or unreasonably disturbed another occupant or the landlord of the residential property;
  • Seriously jeopardized the health or safety or a lawful right or interest of the landlord or another occupant;
  • Put the landlord’s property at significant risk;
  • Caused extraordinary damage to the residential property; or
  • Engaged in illegal activity that has;
    • Caused or is likely to cause damage to the landlord’s property;
    • Adversely affected or is likely to adversely affect the quiet enjoyment, security, safety or physical well-being of another occupant of the residential property; or
    • Jeopardized or is likely to jeopardize a lawful right or interest of another occupant or the landlord.

To summarize, if a tenant received a Notice to End Tenancy before March 30, 2020, it is valid and, once the State of Emergency ends, the landlord will be able to apply for and execute on an Order of Possession.  If you have any questions or concerns regarding your tenancy or a Notice to End Tenancy you received, please call Heath Law LLP at 250-753-2202.

 

COVID-19 Pandemic – Commercial Retailers Defaulting Rental Payments Increases

In the face of the global COVID-19 pandemic that is currently plaguing the world, some commercial retailers have been forced to close their doors.  With no income, the likelihood of these commercial retailers defaulting on their rental payments increases.  What should the commercial landlord do with the defaulting tenant taking into account the world at large?

The commercial landlord has many options available.  The landlord should first provide a default curing period.  Often there are stipulations in the tenancy agreement itself which supply the curing period, but if there isn’t, the landlord should consider extending a curing period unless the landlord seeks to immediately terminate to regain possession of the premises.

The landlord should also consider a variety of tenant concessions unless as stated previously, the landlord wants to regain possession of the premises.  Some examples of concessions would include:

  • Basic Rent abatement or deferral;
  • Basic Rent suspension for defined periods (i.e. 3-6 months or longer depending on the nature of the tenancy);
  • Basic Rent deferrals for a defined period and a corresponding increase in Basic Rent at a point in the future to make up for the Basic Rent deferral;
  • Either eliminating or reducing the obligation to pay Basic Rent and replacing it with the requirement to pay Percentage Rent for a defined period of time;
  • Abating or suspending both Basic Rent and Operating Costs. Typically landlords like to recover at least their out of pocket expenses such as realty taxes, insurance, utilities still and maintenance costs;
  • Reduction or elimination of administrative fee and/or management fee component of operating cost charge;
  • Reduction or elimination of promotional and marketing fees;
  • Reduction of services offered and performed at the property to effect a reduction in operating costs to be charged to tenants during the COVID pandemic;
  • Depending on the size of the property, number of tenants and nature of the tenancies in a given property, a landlord can consider a reduction of services provided to tenants during the state of emergency, which would potentially reduce operating costs;
  • If the landlord would rather that a particular tenant vacate its premises, then the landlord may consider building in an automatic termination or an option to terminate for the landlord.
  • Ensure that any concession you agree to clearly provides the following:
    • a consideration clause;
    • when the concession expires;
    • that the lease is otherwise in full force and effect and remains unamended;
    • time shall continue to remain of the essence;
    • the concession is not a waiver of any other clause in the lease;
    • an indemnitor signature, if applicable.

Further options available to the landlord include terminating the lease, suing for arrears and distraint.

If the landlord elects to terminate the lease, the tenant will have to vacate the premises.  This remedy would not be advisable if the landlord wants the tenant to remain in the premises, does not have a replacement tenant for the premises or if the landlord does not intend to use the premises themselves.

If the landlord sues for arrears, this action affirms the tenancy meaning the landlord can’t sue for arrears and then terminate the lease for failure to pay those same arrears.

Distraint allows a landlord to seize the tenant’s goods on the premises with a view to eventually having those goods sold to pay for the arrears of rent.  There are special rules that a landlord must adhere to when exercising their right of distraint.  They must only seize and sell those goods necessary to pay the rent arrears, there has to be an appraisal of the goods and the goods that are seized have to be the tenant’s goods. Also, similar to suing for arrears, if this option is chosen, then the lease will have been affirmed and the landlord cannot terminate for that same breach.

If you need legal advice with regard to a commercial tenancy please contact Heath Law LLP at 250-753-2202.

COVID-19 and Contract Frustration

In a previous blog post, COVID-19 and how the force majeure clause could apply to it was discussed.  For a force majeure clause to be activated, there has to be one in a contract.  Sometimes contracts are drafted without force majeure clauses.  Without the force majeure clause, are the parties bound to their agreement even if something arises that makes it impossible to perform the contract?  Contracts can be “frustrated” meaning subsequent to its formation, and without fault of either party, the contract becomes incapable of being performed due to an unforeseen events, resulting in the obligations under the contract being radically different from those contemplated by the parties to the contract.

The legal consequence of a contract that is found to have been frustrated is that the contract is automatically terminated at the point of frustration. The contract is not void ab initio (from the beginning), it is only void with regard to future obligations.

For frustration to operate, it is not sufficient that the performance of the contract is more onerous or unreasonably harsh. Instead, there must be a fundamental change in the circumstances governing performance.  The performance contemplated by the contract must become impracticable in a legal sense. The contract must become something drastically different from that which was initially contemplated by the parties.

Frustration is interpreted narrowly by the courts as there is a public interest in people being bound to the contracts they enter into.  COVID-19 could be grounds for deeming a contract frustrated but this is obviously context-specific.

COVID-19 and Contract Obligations

Contracts are of vital importance to the workings of society.  They hold people accountable to their promises and actions.  When a contract has the necessary elements (offer, acceptance, and consideration) as well as being properly signed, the parties will be bound to whatever promises were made in the contract.

Often, contracts have stipulations that address situations in which a party does not meet their contractual obligations.  It is easy to see why such stipulations are placed in contracts.  If you exchange promises with someone else and you fulfill your obligations and the other party does not, you should have recourse against the other party.

However, what if something arises that couldn’t be anticipated by either party to the contract which stops one or both parties from fulfilling their promises under the contract.  A “Force Majeure” clause is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, plague, or an event described by the legal term act of God prevents one or both parties from fulfilling their obligations under the contract.

Could COVID-19 activate a force majeure clause in a contact?  It depends on a multitude of factors.  A non-exhaustive list is as follows:

  • The wording of the particular force majeure clause;
  • What the obligations were under the contract; and
  • The steps the parties have taken to try to fulfill their obligations.

The force majeure clause must have language broad enough to capture events such as COVID-19.  Further, the obligations under the contract must be such that the effects of COVID-19 would make it impossible for the party to complete their obligations under the contract and the parties must act with the honest intention of actually fulfilling their obligations.  A party cannot simply rely on COVID-19 as an excuse for not performing.

It is always advisable for one to fulfill their contractual obligations but sometimes situations arise in which contract performance is impossible through no fault of their own.  In those situations, a force majeure clause may save a party from recourse by the other.