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Does the COVID-19 disease trigger a “force majeure” clause in contracts?

A particularly frequent question is whether the Coronavirus Disease (COVID-19) Pandemic gives rise to a Force Majeure Clause in Italian Property Sales and Purchasing Contracts and excuses parties from performing their obligations.

COVID-19 and the “force majeure” clause in contracts

Also known as an, “Act of God”, a Force Majeure clause in contracts is widely known, yet narrowly understood.

In general, an event that triggers a Force Majeure is an event that is beyond the control of either party to a contract, which in effect, will prevent or hinder the performance of the contract.

Illness is a very unusual reason for declaring a Force Majeure, but the Coronavirus disease (COVID-19) pandemic is not a common ailment. It has confined entire countries and restricted peoples’ movement and travel.

Unforeseen disruptions due to the spread of the Coronavirus disease have seen an increased number of calls from our clients about their responsibilities and rights concerning contracts related to sales and purchases of Italian property.

A particularly frequent question is whether a, “Force Majeure” clause exonerates vendors and buyers from performing contractual obligations with regard to Preliminary Contracts and Deeds of Sale for property in Italy.

What happens with Italian property contracts during Coronavirus restrictions?

Art. 91, 17 March 2020 n. 18 (“Decreto Cura Italia”) legislation deals with the liabilities for non-performance of a contract, with particular reference to non-performance of the obligation to complete a Deed of Sale within the time limit set out in the Preliminary Contract.

A party to a contract, who fails to perform contractual obligations, shall be liable to pay damages unless it can be proved that the non-performance was caused by circumstances resulting from a cause beyond control (i.e. a Force Majeure).

The same “Decreto Cura Italia” law also includes containment measures that limit movement, designed to prevent the spread of the Coronavirus disease (and, in this respect, it should be noted that failure to comply with these containment measures is sanctioned under Article 650 of the Penal Code).

The issue of containment measures, and therefore the restriction of movement, represent an obstacle in terms of completion of a Deed of Sale, both for those who may need to move from one Italian Municipality to another, but above all for people involved in cross-border real estate transactions.

Such containment measures, adopted to prevent the spread of the Coronavirus disease may make it difficult and/or impossible, for all the parties involved in Italian property transactions, to arrange the completion of the final Deed of Sale with a notary public.

To remedy this, parties can extend the contractual time limit for completion of a Deed of Sale or, in order to avoid missing the deadline, they can also complete the Deed of Sale by means of a non-authenticated private deed.

It should be pointed out that for the latter, non-authenticated remedy, in line with art. 1350 of the Italian Civil Code, parties will need to repeat the transcription and authentication process at an ulterior date – once current containment measures have been lifted. Failure to have a Deed of Sale authenticated and transcribed once containment measures have been removed, could render the Deed of Sale null and void.

There is also a third way, which many clients are opting to take. By conferring a Limited Power of Attorney,  you can have someone act on your behalf in Italy. If you take this option, it is important that you entrust your affairs to a reliable and competent person, preferably a professional. Appointing someone who does not have enough experience or who might have vested interests, or with whom there may be a conflict of interests, is highly inadvisable.

Our advice would be that you only use a special bonded holding account to protect the balance of your payment for the sale. This type of holding account, known as a, “Deposito Prezzo” in Italian, can be arranged with a notary public. Your money will be held by the notary who will act as guarantor for financial transactions.

Force majeure clause: I am negotiating a Preliminary Contract for a property. What should I do?

If you are in the process of negotiating the sale or purchase of a property in Italy, you should make sure that you include a “Force Majeure” clause in the Preliminary Contract. The clause should take into account a wide range of events: not only natural disasters and catastrophic events, but also disease epidemics and pandemics, such as the one we are currently experiencing.

If you are in the process of drafting or signing a Preliminary Contract or a Deed of Sale and you feel unsure about anything property-related, or if you need legal advice because of the emergency situation, our legal professionals are here to provide you with help and guidance.

Please contact De Tullio Law Firm at the following email address info@detulliolawfirm.com