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Force Majeure

Force Majeure is a clause that is typically included in contracts to remove liability for natural and unavoidable catastrophes that interrupt the expected course of events and restrict participants from fulfilling obligations. It 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, or an event described by the legal term act of God (hurricane, flood, earthquake, volcanic eruption, etc.), prevents one or both parties from fulfilling their obligations under the contract.

In a real estate investment contract, a force majeure clause might be invoked if, for example, a natural disaster prevents the completion of a construction project, or if governmental actions related to a pandemic prevent tenants from occupying a leased space. This clause is particularly important in real estate, as many unexpected events can occur that might significantly impact the use or value of the property. It’s used to mitigate risk and protect both the buyer and the seller in the case of such extraordinary events.

The precise definition and applicability of a force majeure event is generally defined in the contract and subject to interpretation by the courts. Therefore, when drafting and negotiating contracts, parties need to pay close attention to the wording of the force majeure clause to ensure it appropriately covers the range of unexpected events that might impact their ability to fulfill their obligations under the contract.