Navigating Hurricanes and Their Impact on FR/BAR and NABOR Contracts in Southwest Florida

October 4th, 2024

As Realtors in Southwest Florida, hurricane season isn't just a weather concern—it's a critical factor that can significantly impact real estate transactions. Understanding how hurricanes affect the Florida Realtors/Florida Bar (FR/BAR) and Naples Area Board of Realtors (NABOR) contracts is essential for protecting your clients' interests. This article explores the contractual implications of hurricanes, adds more key points, and provides hypothetical examples to illustrate what you and your clients can expect, especially in light of recent events like Hurricane Helene.

Understanding the FR/BAR Contract Provisions

The FR/BAR contract is comprehensive, including specific clauses that address disruptions caused by hurricanes and other natural disasters.

Key Points:

1. Force Majeure Clause

• Definition: A force majeure event is an extraordinary circumstance beyond the control of the parties that prevents one or both from fulfilling the contract.
• Contractual Impact: If a hurricane like Helene affects the area, all contractual deadlines—including inspection periods, financing commitments, and closing dates—are automatically extended. The extension lasts for a reasonable period, typically up to seven days after services are restored.
• Hypothetical Example: Imagine you're set to close on a property in Naples when Hurricane Helene strikes, causing widespread power outages and office closures. Under the force majeure clause, the closing date is extended until services resume, preventing either party from defaulting due to circumstances beyond their control.

2. Property Damage and Risk of Loss

• Seller's Responsibility: The seller is responsible for any damage to the property until the closing occurs.
• Repair Cost Threshold: If the cost to restore the property is less than 1.5% of the purchase price, the seller must make the necessary repairs and proceed to closing.
• Buyer's Options if Damage Exceeds 1.5%:
  • Terminate the Contract: The buyer can cancel the agreement and receive a full refund of their deposit.
  • Accept the Property with a Credit: The buyer may accept the property "as is" and receive a credit equal to the amount of the repair costs.
• Hypothetical Example: Suppose Hurricane Helene causes $5,000 worth of damage to a $300,000 home (1.67% of the purchase price). Since the damage exceeds 1.5%, the buyer can choose to terminate the contract or accept a credit.

3. Insurance Challenges

• Binding Restrictions: Insurance companies often stop issuing new policies when a hurricane is imminent.
• Financing Implications: Without insurance, lenders may delay funding, affecting the closing schedule.
• Hypothetical Example: A buyer can't secure homeowner's insurance due to binding restrictions during Hurricane Helene. Consequently, the lender postpones funding, triggering the force majeure clause and extending the closing date.

4. Inspection Periods

• Access Issues: Hurricanes can prevent inspectors from accessing properties, delaying the inspection period.
• Automatic Extensions: The force majeure clause allows for automatic extensions of the inspection period until services are restored.
• Hypothetical Example: An inspection is scheduled, but Hurricane Helene makes landfall, making the property inaccessible. The inspection period is extended without penalty to the buyer.

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2. Navigating the NABOR Contract Provisions

The NABOR contract includes clauses similar to the FR/BAR but tailored to the Naples area and its specific practices.

Key Points:

1. Casualty Loss Clause

• Seller's Obligation: The seller must restore the property to its pre-damage condition before closing.
• Buyer's Options if Repairs Delay Closing:
  • Extend Closing Date: The buyer can extend the closing date up to 15 days.
  • Accept "As Is": The buyer may accept the property in its damaged condition with an assignment of insurance proceeds.
  • Terminate the Contract: The buyer can cancel the agreement and receive a deposit refund.
• Hypothetical Example: A property suffers severe wind damage from Hurricane Helene, requiring extensive repairs. The buyer opts to extend the closing date. If repairs aren't completed within the extension, the buyer can choose to proceed "as is" or terminate the contract.

2. Force Majeure Clause

• Definition and Impact: Similar to FR/BAR, this clause allows for the extension of deadlines when performance is prevented due to a hurricane.
• Hypothetical Example: Utility outages after Hurricane Helene prevent necessary property appraisals. The force majeure clause extends all related deadlines until services are restored.

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Additional Key Points and Hypothetical Examples

1. Deposit Handling and Escrow

• Secure Funds: Ensure that deposits are held in escrow to protect both parties.
• Hypothetical Example: After a contract is terminated due to hurricane damage, a dispute arises over the deposit. Proper escrow handling ensures the funds are returned to the appropriate party without legal complications.

2. Communication with Lenders and Insurers

• Proactive Engagement: Maintain open lines of communication to anticipate and mitigate delays.
• Hypothetical Example: Knowing that Hurricane Helene is approaching, you coordinate with the lender to expedite the appraisal and with the insurer to bind coverage before binding restrictions take effect.

3. Seller's Disclosure Obligations

• Post-Storm Disclosures: Sellers must disclose any new damages discovered after the hurricane.
• Hypothetical Example: A seller finds water intrusion in the attic after Hurricane Helene. This must be disclosed to the buyer, who may request repairs or a price adjustment.

4. Building Code and Permit Requirements

• Compliance Necessity: Repairs must meet current building codes, which may have changed since the property was built.
• Hypothetical Example: Roof repairs required after Hurricane Helene must comply with updated hurricane-resistant standards, potentially increasing costs and repair time.

5. Utility and Essential Service Interruptions

• Impact on Occupancy: Delays in restoring utilities can affect move-in dates and occupancy permits.
• Hypothetical Example: A buyer plans to move in immediately after closing, but power restoration is delayed. They may need temporary housing, adding unexpected costs.

6. Mold and Environmental Concerns

• Health Risks: Water damage can lead to mold growth, requiring remediation.
• Hypothetical Example: Post-hurricane inspections reveal mold behind drywall. The seller must address this issue, possibly delaying closing.

7. Market Volatility

• Price Fluctuations: Hurricanes can affect property values in the short term due to increased inventory or decreased demand.
• Hypothetical Example: After Hurricane Helene, an influx of damaged properties enters the market, affecting comparable sales and appraisals for ongoing transactions.

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Best Practices for Realtors

1. Stay Informed and Prepared

• Monitor Weather Updates: Keep an eye on potential hurricanes to anticipate their impact on transactions.
• Educate Clients: Inform buyers and sellers about how hurricanes may affect their contracts.

2. Proactive Contract Management

• Review Force Majeure Clauses: Ensure that contracts have clear provisions for extensions and obligations during natural disasters.
• Customize Clauses if Necessary: Work with attorneys to tailor contract clauses to better protect your clients.

3. Effective Communication

• With Clients: Keep both buyers and sellers updated on any changes or delays.
• With Other Professionals: Coordinate with lenders, inspectors, and insurers to manage timelines.

4. Risk Mitigation Strategies

• Encourage Early Insurance Binding: Advise buyers to secure insurance policies well before closing.
• Backup Plans: Develop contingency plans for potential delays or issues.

5. Legal Consultation

• Seek Expert Advice: When in doubt, consult with real estate attorneys to navigate complex situations.

Conclusion

Hurricanes are an inevitable part of life in Southwest Florida, and their impact on real estate transactions cannot be underestimated. By thoroughly understanding the provisions within the FR/BAR and NABOR contracts and preparing for potential disruptions, you can effectively guide your clients through the challenges posed by storms like Hurricane Helene. Proactive planning, clear communication, and a deep knowledge of contractual obligations will help ensure successful transactions, even in the face of natural disasters.

References

• Florida Realtors/Florida Bar Residential Contract. Available at: Florida Realtors
• Force Majeure in Real Estate Contracts. Available at: Florida BAR
• Understanding Risk in Real Estate Transactions. Available at: National Association of Realtors

Hurricanes are an inevitable part of life in Southwest Florida, and their impact on real estate transactions cannot be underestimated. By thoroughly understanding the provisions within the FR/BAR and NABOR contracts and preparing for potential disruptions, you can effectively guide your clients through the challenges posed by storms like Hurricane Helene. Proactive planning, clear communication, and a deep knowledge of contractual obligations will help ensure successful transactions, even in the face of natural disasters.