Real Estate Transactions During COVID-19: Issues to Address

COVID-19 has disrupted the customary process of negotiating purchase agreements and closing real estate transactions across the United States. Skeletal staffing, reduced hours and the closure of financial institutions, county recorders, title companies and other businesses present novel issues that the parties to a real estate deal must address in order to successfully complete their closing. A brief review of some of those issues follows.

Purchase and Sale Agreements

When negotiating a purchase and sale agreement, the parties should make allowances for delays that may occur due to COVID-19-related closures or limitations. If any deadline, such as the date that the earnest money is due or the closing date, falls on a day when financial institutions or title companies are closed for business because of COVID-19 or are otherwise unable to process the transaction, the parties should consider including an automatic extension to the next business day when such companies or institutions are open for business and functional once again.

The parties should also consider automatically extending deadlines if the officers, employees, agents or other representatives of the buyer or seller are unable to perform their duties due to stay-at-home orders, COVID-19-related illness or self-quarantine protocol. For instance, if a signatory cannot have documents notarized or initiate wires because such tasks have to be done in person and he or she is ill or self-quarantined, an automatic extension will avoid a last-minute scramble to get an extension drafted, signed and circulated. If the delay lasts longer than a threshold number of days, the parties may also want to grant a right of termination to the party that is being asked to accommodate the extension.

The COVID-19 pandemic may impair the buyer’s ability to investigate the property and obtain or confirm entitlements during the due diligence period. For example, travel bans and stay-at-home orders may make on-site inspections of the property impossible for environmental consultants, surveyors and other members of the buyer’s team. The closure of government offices may prevent zoning consultants from confirming with local officials that the property is zoned appropriately or what violations affect the property.  The issuance of governmental approvals that are critical to the buyer’s intended use of the property (e.g., zoning variances, permits, etc.) may be delayed as well. Buyers should seek an automatic extension in all of the foregoing instances. Sellers may request either an increase in the earnest money or that a portion of the deposit be deemed non-refundable in exchange for agreeing to an automatic extension of the due diligence period. 

The parties should also consider how to handle requests for rent relief or other concessions from tenants of the property that have seen their businesses decline or shutter as a result of the COVID-19 pandemic. In many purchase agreements, buyers have certain approval rights over lease amendments entered into after the effective date of the purchase agreement, but in the current economic climate, sellers will likely want greater flexibility to negotiate lease amendments so their tenants remain viable. One possible solution to the buyer’s desire for approval and the seller’s desire to maintain flexibility is to place a ceiling on how much rent may be reduced for each tenant (or on an aggregate basis measured in terms of a total reduction in the rent roll) before the seller must obtain the buyer’s consent. Additionally, sellers may want to eliminate or scale back certain closing conditions (e.g. tenant estoppels, absence of material adverse changes) and representations and warranties in the purchase agreement regarding the existence of tenant defaults, taking into account the likelihood of such rent relief and other concessions.

If a purchase agreement includes a covenant by the seller to cause improvements to be made to the property prior to closing, the seller will want extra time for the work to be timely performed to allow for delays caused by COVID-19. Sellers should define what constitutes a “delay” in broad terms and include the inability to procure labor or materials due to (i) judicial orders and (ii) federal, state, county or local governmental or municipal laws, statutes, ordinances, rules, regulations, codes, decrees, orders or other requirements that prohibit, suspend or otherwise delay the seller’s work. In states that have limited the type of construction projects that may proceed, this is imperative. Buyers will want to cap the number of days that COVID-19 may delay the completion of the work.

The discussion above is intended to highlight only some of the provisions in a purchase agreement that may have to be adjusted. Since the effects of COVID-19 may interfere with the performance of multiple obligations under a purchase agreement, the parties may want to consider including a force majeure clause, even though it is not customarily used in purchase agreements, to expressly cover scenarios in which the COVID-19 pandemic may delay the performance by either party of its contractual obligations (and, if so, address any appropriate carve-outs to such force majeure provision).

Title Insurance

COVID-19 has caused recorder’s offices to close or reduce hours in counties across the nation, though real estate transactions may still be consummated in counties that allow e-recording. Some title companies have responded to these closures by modifying their “gap” coverage, which is title insurance for the period of time between the effective date of the most recent title commitment for a property and the date that the deed or mortgage is recorded in the county records. The “gap” period exists because in many counties title companies are unable to record documents on the date that a transaction closes and many recorder’s offices are unable to index a recorded document to a property for a certain period of time after it is recorded. Generally, title companies will provide “gap” coverage if the seller in a purchase and sale transaction, or the borrower in a financing transaction, agrees to indemnify the title company against the risk that any defect, lien, encumbrance, adverse claim or other matter is placed of record during the “gap” period. In response to COVID-19, some title companies are not providing “gap” coverage or they are modifying the requirements to obtain such coverage. Others are amending their “gap” indemnities to include an express acknowledgment of the limitations caused by the closure of recorder’s offices. In particular, the buyer/borrower may be asked to acknowledge that the title company cannot estimate when the deed or other title document will be recorded and that refinancing or selling the property or obtaining building permits may not be possible until recordation occurs.

Closing Procedures

Many title companies have revised their closing procedures to incorporate social distancing policies. “Nonessential” participants (which may include brokers and even sellers) are being asked not to attend in-person closings. To the extent an in-person closing is unavoidable, attorneys are being asked to bring a power of attorney to execute documents on behalf of their clients. Some title companies are facilitating “curbside” closings where the participants park their cars outside the title company and an escrow officer brings any documents that have to be signed to their cars. Mail-in (or escrow) closings are being encouraged. With mail-in closings, the buyer and seller execute all documents in advance and have them delivered to the escrow agent for processing on the day of closing.

If finding a notary to notarize a closing document in person proves difficult, the parties should check the laws of their state to see if remote notarization is allowed. If so, they may be able to have deeds, mortgages and other title documents notarized and/or witnessed using two-way audio-video conference technology. Governors of a number of states have issued executive orders allowing a notary to attest to the identity of the person who signed a legal document without being in the same physical space as that person. However, certain conditions must be met for the notarization to be valid. For example, in Illinois, the notary and signatory must appear before each other on video camera and attest that they are both physically located in Illinois. The signatory must name the document he or she is signing, show each page of it to the notary, initial each page as the notary watches, and transmit a signed copy by fax or email to the notary within a day after having signed it. The notary must then notarize the document and return the notarized copy to the signatory within 24 hours of receiving it, and a tape of the videoconference must be preserved by the signatory or its designee for three years.


Despite the outbreak of COVID-19 and the implementation of travel bans, stay-at-home orders and social distancing policies, real estate contracts are still being negotiated and transactions closed. In the purchase agreement drafting stage it is worthwhile for the parties to anticipate how certain provisions may be impacted by COVID-19 and to agree upfront on how such issues will be handled. The parties should also give some additional thought to the effect of the pandemic on closing mechanics (e.g., how documents will be executed, notarized, delivered and recorded) and address those issues in advance as well.

Please visit our COVID-19 Toolkit for all of Taft’s updates on the coronavirus.

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