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Wildfire Q&A: Navigating Contract Delays and Form 22FM

Question:

Spokane is experiencing catastrophic wildfires (as of last count, 913 structures have been lost). We have pending sales that are experiencing or will experience problematic delays (e.g, insurance companies not issuing binders, lenders requiring final inspections, etc.). Should we consider inserting a Form 22FM - Force Majeure and Closing Addendum into these existing transactions? I know either party could propose it and the other wouldn't be obligated to accept it, but should we be talking to our clients about this form? Should we be encouraging clients (buyers and sellers) to sign them? What would be appropriate timelines? Finally, if we write an offer for a buyer on a new transaction knowing these are issues that may take some time to resolve, should the form be included in new transactions we are writing?

 

Answer: 

Background: Act of god and implied duty of good faith.

The Spokane wildfires are an "act of god".  Defining an "act of god", as it applies to a specific contract, must occur on a case by case basis.  That said, it seems likely that any court interpreting a residential PSA that was binding prior to the onset of the fires would view the 2026 Spokane wildfires as an "act of god".  Whether a contract includes a force majeure provision or not, an "act of god" that makes performance impossible will excuse performance. For example, if an existing residential PSA required the parties to close on August 5 but seller's home was destroyed in the wildfires on August 2, it is most likely that a court would find performance of the contract to be impossible and both parties would be excused without liability to the other.
 
However, the fact that an "act of god" occurred, does not eliminate each party's implied duty of good faith required in the performance of the contract. The doctrines of impossibility and good faith co-exist.  For example, assume mutual acceptance occurred the day before the wildfires broke out, giving buyer a 5 day inspection contingency.  The day after mutual acceptance, the home was included in an "evacuation zone" that required seller to leave the property and prevented buyer from accessing the property.  Assume further that the evacuation orders persisted for the entirety of the inspection period but when the evacuation orders were lifted, seller's home remained, unaffected by the fires.  The doctrines of impossibility and good faith would likely converge and result in a situation where buyer's inspection contingency was delayed until a time that buyer could access the property but all other terms of the agreement would remain in effect, even if delayed for the period of the evacuation orders.  The parties would continue to have a good faith duty to perform the terms of the contract even as buyer's inspection contingency was delayed by the "act of god". 
 

How Long is a Reasonable Delay?

The Hotline lawyer cannot identify how long any delay should be or the amount of time brokers should be urging parties to give.  Instead, the facts will have to dictate the answers to these questions.  When the evacuation order is lifted, is it lifted for all purposes or only for property owners to re-enter the area to secure their property?  When the evacuation order is lifted, are buyer's inspectors and contractors reasonably available or are they consumed with demand from other property owners requiring immediate assistance?  The actual facts will determine the amount of delay that is reasonable.

Contract Disputes Are Always Resolved On a Case by Case Basis. 

All of this is subject to judicial interpretation and application on a case by case basis.  A court may or may not agree with the broad statements and examples given above as they are applied to the specific facts of any given case.  Thus, if brokers are representing parties who find themselves at odds with respect to performance of a PSA following the wildfires, brokers should advise their clients to seek legal counsel.  Neither broker nor the Hotline lawyer can advise any party as to how a court will adjudicate a specific dispute. 

Should Spokane Brokers Be Using Form 22FM?

Broker's question, however, is forward looking.  In light of the wildfires that were recently and may still be raging, is it a good idea for brokers to include a Form 22FM (Force Majeure) addendum in offers that are written today? Broker also asks if brokers should encourage parties, in existing agreements, to amend the terms of those agreements to include a Form 22FM. 

Form 22FM anticipates that a catastrophic event beyond the control of either party can affect the performance of a contract and Form 22FM establishes default timelines for extension of performance requirements in the event of such an event.  The basic premise of Form 22FM reflects Washington law as explained above, that impossibility excuses contract performance, but Form 22FM goes on to provide an agreed number of days by which performance obligations will be extended in light of the event that causes impossibility.  To be clear, whether Form 22FM is included or not, Washington law still pertains to the contract and an event that creates an impossibility will excuse performance, at least temporarily.  The benefit of Form 22FM is that the parties are forced to consider this potential outcome at the time of mutual acceptance and agree, up front, to the amount of delay that will be given.
 

Should F22FM Be Included in New Offers?

If the property that is the subject of the purchase agreement already experienced the Force Majeure event, inclusion of a Form 22FM in a subsequent purchase agreement will not affect the performance obligations unless another Force Majeure event occurs.  For example, assume the property was in an evacuation zone but the property was unaffected by the fire.  Assume further that the evacuation orders were lifted on August 10.  Finally, assume the parties reach mutual acceptance on August 15.  Inclusion of the Form 22FM in this PSA will not affect any contractual timelines unless the property experiences another catastrophic event after mutual acceptance.  Including Form 22FM in this contract results in no harm to the parties and if there should be another catastrophic event, the parties will have negotiated the contract term that addresses their rights and obligations rather than merely relying on the application of Washington law.  It makes sense for brokers to include Form 22FM in a transaction like this but failure to do so is not fatal in any sense. 

Should F22FM Be Added to Existing PSAs?

Assume the parties reached mutual acceptance prior to onset of the fires and after the fires are extinguished, the parties add a Form 22FM to their existing agreement.  Inclusion of the Form 22FM will not affect any contractual obligations that existed prior to inclusion of the form, when the catastrophic event actually occurred.  Again, inclusion of the Form 22FM will only dictate the terms of agreement after the addendum was included in the contract. 

If the parties are attempting to modify their contract to reflect an agreement to modify deadlines based on the fires that already raged and are now controlled, the better approach would be for the brokers to draft an addendum specifying the actual agreement regarding delay.  For example, if the parties agree to extend certain deadlines by 10 days, then the addendum should create those specific outcomes.  Using broker's examples, assume the buyer's inspection contingency deadline passed prior to the onset of the fires and that seller's home was not impacted by the fires but that buyer's lender is unable to timely process the loan because lender's appraiser was denied access during evacuation orders, or an insurance binder is delayed, etc.   The parties may agree to extend buyer's financing contingency deadlines and the closing date by 10 days but not buyer's inspection contingency. The brokers should draft an addendum reflecting the agreement of the parties related to specific timelines.  Adding a Form 22FM would not create the same outcome.  Adding a Form 22FM to the existing contract would not modify the contract based on the fires that occurred prior to inclusion of the Form 22FM.

Again, all of the broad principles explained above and the examples given are provided in the spirit of educating brokers.  No two disputes will result in the same outcome and resolution of litigated disputes is entirely subject to the arguments, facts at issue and determination of the judge.  If broker's client is in a dispute regarding any of the issues discussed in this question and answer, broker should advise broker's client to seek legal counsel.