On January 18th, Con Ed issued a statement that effective March 15, 2019 – now just about a month away – Con Ed will not accept new natural gas applications for service in most of Westchester County. As widely reported, Westchester County developers (as well as politicians and most everyone else) were caught by surprise by Con Ed’s announcement.
The question that some developers are asking in light of the increased costs associated with not being able to hook up to natural gas is how do I get out of my contract and get back my contract deposit. In many contracts where the due diligence period has passed (with the downpayment going hard), the developer’s obligation to close the sale is still contingent on obtaining government approvals to build. Developers are often contractually obligated to proceed in good faith to obtain those approvals and the question becomes is there a way out of the deal without breaching the contract and thereby forfeiting the contract deposit.
The key to getting one’s deposit back may lie in the contract’s force majeure clause- an often overlooked provision in the drafting of the real estate purchase contract. New York courts define force majeure as “an event beyond the control of the parties that prevents performance under a contract and may excuse nonperformance.” Beardslee v. Inflection Energy, LLC, 904 F. Supp. 2d 213, 221 (N.D.N.Y. 2012) aff’d, 798 F.3d 90 (2d Cir. 2015) Force majeure clauses excusing nonperformance due to circumstances beyond the control of a party are narrowly construed under New York law. Kel Kim Corp. v. Central Mkts., 70 N.Y.2d 900, 902 (1987).
Given the narrow construction given to force majeure clauses by New York courts, it would be wise for the contract draftsman representing the developer to draft such clause broadly enough to capture those circumstances which should excuse performance by the developer faced with an energy source moratorium. Such drafting would ensure that the developer could get out of the contract without breaching the contract and receive back the downpayment.
More information can be obtained by contacting the real estate attorneys at Keane & Beane. For more information, contact Patrick J. O’Sullivan at firstname.lastname@example.org. You may also request to be added to future Legal Alerts on this topic.