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Impact of COVID-19 on Purchase and Sale Agreements

This article addresses the potential impact of COVID-19 on critical timing provisions regarding due diligence and the closing in commercial purchase and sale agreements. The same analysis would apply in a residential transaction.

At the outset of the pandemic, buyers found themselves in a challenging situation because their ability to  conduct due diligence investigations successfully was impacted by the pandemic, particularly due to mandated closures and the difficulty in working with the third party consultants involved in the due diligence process. As a result, buyers may now seek to include in a typical due diligence provision the ability to extend the time period in connection with any delays caused by the pandemic. The seller will obviously want to cap any such extension because the due diligence provision typically gives the buyer the ability to terminate the agreement if the due diligence investigation is not satisfactory to the buyer.

Regarding the closing date, the traditional pre-pandemic negotiation would address whether or not time is of the essence. COVID-19 has made the issue of timing for a closing more significant. A purchase and sale agreement that does not include a time is of the essence provision will allow a buyer to extend the closing date for a “reasonable period of time” which apart from pandemic considerations is generally viewed as an additional thirty (30) to sixty (60) days to close.

It is unclear how a court would interpret what a reasonable period of time would be if a transaction was impacted by COVID-19. The seller will generally prefer that time be of the essence because of the certainty it brings to the designated closing date. Although in many transactions a buyer will also benefit from timing certainty, particularly if the buyer is involved in a development project or has leasing requirements involving tenants that the buyer will need to satisfy, eliminating the time is of the essence provision would afford the buyer the ability to extend the time  frame as described above.

If the agreement does include a time is of the essence provision, the buyer may want to include a provision that would allow for an extension of the closing date on a day-for-day or other basis for any delay in closing caused by COVID-19. This is especially important in jurisdictions where a so-called GAP closing is not available to the parties which entails the document signing, delivery of the deed and funding of the transaction before the deed is recorded on some later date in the appropriate recording office. In such instances the seller executes a GAP indemnity agreement to the title company.  In reliance on that indemnity agreement, the title company issues to the buyer a title insurance policy at the GAP closing without the deed being recorded.

In jurisdictions where a GAP closing may not occur, the parties should determine if electronic recording is available and, if so, what the timing and mechanics of that process entail. In some jurisdictions, electronic recording may take days to accomplish because although the documents are submitted electronically, there is still a review process before the documents are technically recorded. There may be numerous documents waiting in this electronic recording queue which could delay the actual closing. As a result, a buyer may want to negotiate a provision in the purchase and sale agreement to extend the closing date to address the potential delays caused by COVID-19. Such a provision will need to be drafted carefully to ensure the interests of both parties are protected.


We are here to help answer specific questions and offer advice on your options. Feel free to contact any member of our Real Estate Group.

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