Coronavirus Delay Clauses - a helpful addition to conditional contracts or option agreements

Coronavirus Delay Clauses - a helpful addition to conditional contracts or option agreements

As the economy emerges from lockdown and real estate deals get moving again there is undoubtedly a sense of caution. What if there is a second wave? What if there is a local lockdown? And what will this mean for getting my deal done or getting a planning permission?

As we have seen in Leicester, local second lockdowns will happen and again people are working from home and that includes all of those people normally involved in the preparation, submission and determination of planning applications.  So what happens if a long stop date contained in a conditional contract or option agreement passes without planning permission having been granted and all extension provisions exhausted? Well the short answer is, any such agreement is likely to fall away.

Obviously this could cause issues for a developer obtaining planning permission under a conditional contract or option agreement, who, having made a significant investment in compiling and applying for planning permission, perhaps having paid a non-refundable deposit or option fee, are then left out in the cold with their agreement falling away.

How to ensure your conditional contract or option agreement remains valid

The parties could of course agree to an extension to a long stop date, to allow for more time for a planning permission to be obtained by entering into a supplemental agreement. This however, relies on both parties being in agreement and is likely to include the drafting of a further legal document, incurring costs for both parties.

Another potential solution could be the inclusion of  a “Coronavirus Delay Clause” in such conditional contracts or option agreements. It acts as a protection for both landowner and developer and essentially stretches out the timescales for any obligations to be complied with (such as applying for planning permission, signing documents or giving approvals to documents) by a timescale  that may have been caused by a “Coronavirus Delay”. It is up to the parties to agree what circumstances could constitute a Coronavirus Delay and some examples might be:

• absences or unavailability of staff at the planning authority, lender, consultants or architects and any loss of, or disruption to any of their facilities;
• illness, quarantining or self-isolation of the buyer, the seller or anyone living with the buyer or seller;
• recommended or mandatory measures introduced by the Government intended to prevent or delay the spread of Coronavirus;
• delay with the processing of planning applications or appeals as a result of Coronavirus;
• any inability to procure witnesses for the signature or execution of any deeds, documents or forms.

How would this work in practice?

The party affected by a Coronavirus delay would serve a notice on the other party informing them of the delay when it arises (with such evidence as may be available) and a further notice when the Coronavirus delay has ceased. This period of delay would extend any timescales within an option agreement or conditional contract for obligations to be performed, as mentioned above.

It will require a degree of trust between the parties and the inclusion of a good faith clause and expert determination provisions may be helpful in ensuring that the parties do not abuse such a delay clause. Such provisions and their enforceability also remain untested on the basis that the pandemic is a recent and ongoing situation.

As the country moves into a recovery phase, there is still much uncertainty but there is no doubt that there is a desire to move forward with projects. As a way to protect both landowner and developer, a Coronavirus Delay clause could certainly be a helpful addition to a conditional contract or option agreement to help keep projects on track, even if a little later than planned.

Contact us

For further information on Coronavirus Delay clauses, conditional contracts or option agreements, please contact Holly Lockley or another member of the residential development team in your local office.

We have launched our guide to recovery and resilience, helping to support businesses and individuals unlock their potential, navigate their way out of lockdown and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.