Developer Claiming 'Force Majeure' Must Prove It

Q: I signed a contract a little more than two years ago to purchase a to-be-built condominium unit. I gave the developer a hefty down payment. My sales contract says that settlement must take place within two years. I inspect the building weekly, and it does not look like a lot of work has been done.

I asked the developer when I will go to closing, and his response was that because of matters out of his control, he will not be able to meet the settlement deadline in the sales contract.

Based on the length of time this has taken and the declining condominium market, I would like to cancel the contract and get my deposit back.

The developer is relying on a paragraph in the contract that excuses a builder from timely delivery based on "force majeure." What does this mean?

A: It is French for "major" or "superior" force. Webster's dictionary defines force majeure as "superior or overwhelming power" and "an unanticipated or uncontrollable event or effect which releases one from fulfillment of a contractual obligation." Some people equate this with "an act of God."

Legal contracts of any kind, including real estate, often include a force majeure clause. A sample would read like this: "Contractor's failure to perform any term or condition of this agreement as a result of force majeure conditions beyond its control such as, but not limited to, war, strikes, fires, flood, acts of God, governmental restrictions, power failures, or damage or destruction, shall not be deemed a breach of this agreement."

The condominium market has slowed dramatically in many places. Furthermore, many developers are now unable (or unwilling) to meet the targeted settlement dates spelled out in their sales contracts.

As a result, I am hearing from lawyers and consumers all over the country that developers are trying to use the force majeure clause as their legal grounds for not refunding earnest money deposits to now-unhappy contract purchasers.

The law of contracts is quite clear. A court will excuse a developer from performance only when there is an actual impossibility, and not merely an unexpected difficulty. Recently, the D.C. Court of Appeals addressed a case where one party to a contract attempted to void that document based on a force majeure-type clause. The clause allowed termination of the contract for "any other emergency beyond the parties' control, making it inadvisable, illegal or which materially affects a party's ability to perform its obligations under this Contract."

According to the court, "Such provisions are often called force majeure clauses, but attaching that label does not assist in our analysis. We must look to the language that the parties specifically bargained for in the contract to determine the parties' intent concerning whether the event complained of excuses performance."

What does this mean?

A developer cannot merely say, "I cannot deliver because of force majeure." That is a label that is too general. The developer must justify his position, providing proof that something truly beyond his control caused the delay in completing your condominium.

Take this example: Recently, there was a serious wind-and-rain storm in the Washington area. Clearly, this was an "act of God." But to be excused from performance, it is not enough for the developer to cite this storm. He must specifically show how and why the storm affected his project.

One lawyer from Florida recently told me that developers in his area are abusing the concept. Any expense due to increased building costs is labeled force majeure, which seems to be the excuse du jour.

What can you do if you signed a contract for property and the time for delivery has elapsed? Send a demand letter to the developer and include a signed release form. This document states that the contract is declared null and void and the earnest money will be refunded in full. You should sign the release and ask the developer to do the same.

Your letter should also state that if he is relying on force majeure, he should specifically document his claim. The burden is on the developer to prove not only that there was an unanticipated event, but also how this event directly affected development.

Unless the developer can justify his position, you are entitled to a refund. I hope you will not have to go to court to collect.

A Florida judge said it all when he wrote: "Inconvenience or the cost of compliance, though they might make compliance a hardship, cannot excuse a party from the performance of an absolute and unqualified undertaking to do a thing that is possible and lawful. Parties . . . bind themselves by their lawful contracts, and courts cannot alter them because they work a hardship."

Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed, stamped envelope to Benny L. Kass, Suite 1100, 1050 17th St. NW, Washington, D.C. 20036. Readers also may send questions to him at that address.