The Rise of The COVID clause
More and more property contracts are getting drawn with "coronavirus clauses" as home movers fear of another lockdown and other pandemic related restrictions.
Over a few months property transactions have gone through some chaotic waves. For a brief time early this year, the Government suspended the housing market and effectively banned transactions. Parties to a property sale transaction found the "coronavirus clause" to be the most important solution to mitigate any fallouts.
With these clauses, COVID-related contract complications would not incur too heavy a penalty or fine on erring parties. Say that a new house buyer contracted the virus and was unable to move, the COVID clause would allow completion date to be delayed. The same goes for when a buyer is furloughed or a mortgage offer has been lost or denied, the clause allows a party to pull out of the purchase with no penalties imposed.
During the suspension of the housing market, the "COVID clause" was ubiquitous and started showing on nearly all property sale contracts. Now that restrictions have been lifted, a few homebuyers remain cautious. The uncertainty of the economy and a fear of more waves of the pandemic makes them more adamant to keep the clause in.
The Government recommended these clauses, as prior to this, there were no allowances for unforseen circumstances in property contracts. Many have welcomed this clauses as a great relief and necessary lifeline. But the ability to cancel agreed terms without any penalty has brought in a new kind of uncertainty into contract law.
Laura Conduit of Farrer & Co, a law firm, said: "It is pretty radical, not being able to give people that certainty. It is a big change for our industry."
With so much uncertainty over a second or third large spike of COVID cases that will once again hurt the housing market, clauses continue to be inserted into contracts.
One other expert from private property office RFR added: "It is very possible that we will experience further lockdowns or partial lockdowns in the UK. For residential sales contracts, this means that Covid clauses will remain a regular feature of the market."
In the midst of all this, data reveals that more people continue to get furloughed or lose their jobs as the outbreak continues. This unprecedent uncertainty shows that the old model of exchange and property transaction is no longer viable for many people.
The professional associaton for lawyers and solicitors the Law Society has expressed concern and care on the clause. According to Mark Sellers, solicitors need to assess all risks, a coronavirus clause may only be inserted if the was a serious risk to the transaction. It should not be present on all contracts. He adds, "If you do that, you have contracts where you're never certain whether the transaction will complete."
Lisa Bevan, senior counsel at Taylor Wessing, reminds practitioners:
"COVID clauses will not cover every eventuality in what is a fast moving and complex crisis, but they do provide a basic layer of protection for both parties who may otherwise be wary about transacting in the current circumstances."
Read how a COVID clause works and her insights here.
