As COVID-19 continues to impact the world, it also continues to make its mark on the real estate industry across our nation. Many “business as usual” activities, such as open houses and home inspections, are increasingly risky in a COVID environment. Brokers now need to not only be great leaders in a challenging sales environment but also good risk managers.
So how can you minimize COVID-related risk when dealing with contracts in your business?
It’s becoming more and more common to use disclaimers, waivers, and COVID-19 related clauses in contracts to help minimize the risk of litigation. In this blog, we cover the basics so you can implement measures to protect yourself and your real estate business.
Disclaimers of Liability and Waivers
Disclaimers of liability and waivers are used widely in the real estate industry, and they’re legally enforceable contracts. But is a COVID-related waiver or disclaimer likely to hold up in court? The answer to this is, MAYBE. It depends on the individual case at hand. The court will look at all aspects of the contract and what supporting evidence that you, as a broker, can produce to prove you took all steps necessary to minimize the risk of exposure or transmission of COVID-19.
If you have not implemented all hygienic measures to reduce the chance of the spread of COVID-19, such as the wearing of face masks, hand sanitization, and cleaning properties in between showings, you may find yourself facing litigation. Waivers do not absolve you from your responsibility to follow COVID-19 safety precautions.
Other criteria for a disclaimer of liability or waiver to hold up in court, include:
It must not violate the laws in your state
The waiver must be worded properly as per the contract law in the state where it is written.
The ‘injury’ must arise from the risks that are expressly stated in the contract, or from the ‘ordinary negligence’ of the company who is disclaiming responsibility.
The courts will find a waiver unenforceable if ‘Gross Negligence’ is proven. This is where the disclaiming company has demonstrated a total and reckless disregard for the safety of others.
‘Hold Harmless’ Agreements
Hold harmless agreements have been used in the construction industry for years, and they are gaining in popularity in other areas of real estate, especially due to the pandemic. A hold harmless agreement is a statement which absolves a party (or parties) of any legal liability for injuries or damage suffered by the other party to the contract.
Hold harmless agreements are useful when the service being provided involves risks that you do not wish to be held financially or legally responsible for. For example, a real estate agent may use a hold harmless agreement to say he/she is not liable if COVID-19 is transmitted during a home inspection.
You may not always be protected against a lawsuit with a hold harmless agreement. However, it’s a documented acknowledgement that the other party has read and understood that certain risks exist. Keep in mind that hold harmless agreements with a broad scope and/or ill-defined terms are not likely to hold up in court. Neither are those where the plaintiff can prove they were coerced into signing the hold harmless agreement.
It is recommended that brokers consult with your legal counsel before using hold harmless agreements to assess their effectiveness and/or risk for your individual circumstances.
COVID Clauses and Templates
Transactions are being delayed due to the pandemic, and many real estate brokers are implementing measures to include COVID-specific terms in the purchase agreement. These terms typically cover:
Extended closing dates (if necessary)
Mandatory quarantine scenarios, where either the seller or buyer is unable to take action under the contract
Closing delays due to third parties, such as government, banks, title companies, escrow companies, and other service providers (e.g., building inspectors and appraisers)
An out for buyers who are affected by COVID-related issues. For example, in situations where buyers contract the virus and are unable to inspect the property they have agreed to purchase.
Several REALTOR® Associations have created templates and addendums to the purchase agreement to assist brokers and real estate professionals. The California Association of REALTORS® provides a coronavirus amendment to their members which automatically extends the closing date by 30 days if a COVID-related delay occurs. It also allows the buyer to back out with their deposit in some cases.
If you haven’t done so already, investing some time and effort in setting up systems and templates for your brokerage can reap considerable benefits. Standardization and consistency in contracts can help keep your business running smoothly and protect your clients and team during this challenging and uncertain time.
Protecting Yourself Against Litigation
Real estate professionals are facing new risks and challenges in a COVID environment. As a broker, now is an ideal time to review your insurance coverage. CRES real estate E&O policies can give you and your team comprehensive coverage that goes far beyond other more generic policies.. With E&O + ClaimPrevent®, you’ll even have access to legal advice from qualified legal professionals 7 days a week at no extra cost.
Contact CRES at 800-880-2747 for a confidential discussion today. If our policy option can’t beat your current plan, we’ll even shop the insurance marketplace for the best policy for you. From Errors and Omissions insurance to a Business Owner’s Policy, we can help you choose the best options to protect your business.
This blog/website is made available by CRES Insurance Services for educational purposes to give you general information and understanding of legal risks and insurance options, not to provide specific legal advice. This blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Claims examples are for illustrative purposes only. Read your policy for a complete description of what is covered and excluded.
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