Should You Add a COVID-19 Clause to a Real Estate Contract?

The residential real estate industry nationwide is experiencing considerable amounts of disruption and uncertainty stemming from the COVID-19 pandemic. While the real estate market is still open and both new and existing deals are moving forward, buyers and sellers face new Coronavirus related legal risks and operational difficulties during the course of a transaction.

A real estate transaction requires complex coordination between numerous parties, including brokers, attorneys, appraisers, lenders, title companies and inspectors.

As a result, it’s increasingly likely that one or more service providers may be providing limited or no service due to COVID-19. Real estate deals are therefore subject to delays, and in some cases deals simply cannot move forward because of limited availability of third parties, illness or general uncertainty.

Real estate attorneys nationwide have begun to include a COVID-19 addendum clause, also known as a rider, to new purchase contracts being signed. The optional Coronavirus contract addendum (rider) provides additional timing flexibility and deal cancellation optionality for both the buyer and seller in response to the uncertainty and increased risk brought about by the pandemic. The rider allows for the buyer to recoup her or his deposit should a real estate transaction be cancelled through language in the COVID-19 rider.

What does the Coronavirus purchase contract rider say?

The boilerplate COVID-19 addendum provided by The New York Association of Realtors (NYSAR) provides for an optional extension of all deadlines in a purchase contract due to COVID-19 issues. The contract rider also allows for optional termination of the contract by either party should the COVID-19 issue continue for a mutually agreed upon number of days beyond the closing date set forth in the contract.

For buyers who are financing with a mortgage contingency, the Coronavirus contract rider also includes a funding contingency. This gives a purchaser the ability to cancel the deal and recoup the contract deposit if the buyer is unable to fund the loan at closing due to COVID-19. This protects a buyer who loses her or his job due to Coronavirus after receiving a loan commitment letter but before closing, as banks will not ordinarily fund a loan to a purchaser who is no longer employed.

For the purposes of the optional contract rider, COVID-19 issues may include, but are not limited to: emergencies declared by the government, travel restrictions, mandatory closures or reduction of staff at transaction related service providers, quarantine, exposure to or contraction of COVID-19.

The COVID-19 real estate purchase contract addendum clause (rider) extends contract deadlines and also allows buyer or seller to cancel due to Coronavirus.

The text of the NYSAR COVID-19 Addendum is as follows:

Seller and Purchaser agree that the Coronavirus (COVID-19) pandemic is impacting real estate transactions, transaction related service providers and consumers. There is a possibility that transaction related service providers such as lenders, title/abstract companies, appraisers, home inspectors and attorneys may be providing limited or no services as a result of COVID-19 issues. COVID-19 issues may include, but are not limited to: emergencies declared by the government, travel restrictions, mandatory closures or reduction of staff at transaction related service providers, quarantine, exposure to or contraction of COVID-19.

If a COVID-19 issue should arise making compliance with the terms of the Contract impossible or improbable as a result of such COVID-19 issue, the Seller and Purchaser agree to the following modifications of the Contract:

1.Seller and Purchaser agree to extend all deadlines in the contract by [    ] days after the end of the COVID-19 issue (Extension Date). Should the COVID-19 issue continue [    ] days after the closing date set forth in the Contract, Seller and/or Purchaser has right to terminate the Contract. Such termination must be made in writing to the other party and other individuals/entities requiring notice using the same method(s) of notice as contained in the Contract.

2. OPTIONAL [    ] If checked: Purchaser and Seller agree, notwithstanding that Purchaser may have removed their financing contingency, that if Purchaser is unable to fund their loan and close due to Purchaser’s loss of income from a COVID-19 issue, then Seller and/or Purchaser has the right to terminate the Contract. Such termination must be made in writing to the other party and other individuals/entities requiring notice using the same method(s) of notice as contained in the Contract.

3. In the event that the Contract is terminated under Paragraph 1 or 2, the Deposit shall be returned to the Purchaser.

4. Other: [    ]

All other terms and conditions of the Contract remain in full force and effect.

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What risks is the Coronavirus rider designed to protect against?

The Coronavirus purchase contract rider is designed to protect against COVID-19 related disruptions which may delay a transaction. For example, a deal might not be able to move forward if government mandated stay-at-home orders prevent an appraiser or inspector from visiting the property.

Another example would be if the buyer or seller gets sick and is hospitalized or quarantined, making it impossible to move forward with the deal based on the original timeline as outlined in the purchase contract.

Some condo and co-op buildings have banned move-in and move-outs during the pandemic, and the inability for the seller to move out or the buyer to move in (or both) creates another obstacle when it comes to finalizing and moving forward with a closing date.

Pro Tip: Estimate your buyer closing costs in NYC with Hauseit’s Interactive Closing Cost Calculator for Buyers.

Is a Coronavirus purchase contract addendum required?

No. The COVID-19 purchase contract addendum is completely optional. The stock rider itself may be utilized and optionally customized based on mutual agreement of both buyer and seller.

The rider can be included as part of the contract itself or it may be utilized after the contract itself has already been signed, provided that both parties agree to it.

Pro Tip: Estimate your seller closing costs in NYC with Hauseit’s Interactive Closing Cost Calculator for Sellers.

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Last Updated: 4/19/2020
Disclosure: Hauseit® and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. No representation, guarantee or warranty of any kind is made regarding the completeness or accuracy of information provided. Hauseit LLC is a Licensed Real Estate Broker, licensed to do business in New York under license number 10991232340. Principal Office: 148 Lafayette Street, New York, NY 10013.

3 thoughts on “Should You Add a COVID-19 Clause to a Real Estate Contract?”

  1. If we are selling today 4/24/2020 2 apartments in different buildings that are in the same coop and the total sale amount is $745,000, what is the transfer tax rate? 1.825% or otherwise?

    Thank you.

    Gideon Raviv
    718 268 6928

    1. Sonja Gosine, Spokesperson at Hauseit®

      Hi Gideon, we recommend checking out our NYS and NYC transfer tax article, and read the subsection titled “Transfer Taxes When Selling Combined Apartments.”

      It seems you may have to pay a higher “bulk” rate because you’ve sold 2 or more units within the same building within a 12 month period, especially since it seems the intent was not to sell a combined apartment which might be easier to appeal. Please remember to speak with your attorney or one of our real estate attorneys based in NYC as we do not provide legal, financial or accounting advice.

  2. Realtor in New York

    I just attended a CE class on remote closings in the age of COVID-19 in NYC. It seems some of the main pitfalls to watch out for are:
    – Wire transfer delays
    – Final walk-through delays
    – Inability to access property (i.e. appraiser)

    Also, it seems that remote closings in general take longer and require days of preparatory work in advance to print/scan documents ahead of time. Financing / board documents are especially troublesome, and using a virtual notary through a secure Zoom chat (where the encounter is recorded) is interesting to say the least. The notary has to keep a type log, prepare an affidavit and check the ID of the signatories virtually … this in itself can take 5 to 10 minutes!

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