Does a Delay in the Delivery of an Apartment Due to the Coronavirus Constitute Grounds for Untimely Delivery without Compensation?

With the spread of coronavirus, many home buyers are living in a state of uncertainty. What happens if a contractor’s workers do not come to work due to the spread of the virus, and therefore cause delays in the delivery of an apartment from the contractor to the buyer? Will the buyer be entitled to compensation or will the delay be justifiable?

Israeli law includes several mechanisms that offer different solutions for such circumstances. One of these mechanisms is force majeure, or contract impossibility in professional jargon. Section 18 of the Contracts Law states that upon the occurrence of an event that neither party to the agreement could have predicted or prevented in advance, the parties’ obligations under the contract are suspended until the end of the event or are completely vacated (as the case may be) without any compensation.

In addition, many agreements include a provision negating the possibility of compensation if a delay in delivery of possession was caused by a force majeure event not in the control of the parties. Most agreements today are drafted to cover broader circumstances than those deployed in the law and many times even include specific events (such as earthquakes, war, and so forth). It should be clarified that the law does not provide a clear definition of what might constitute a force majeure event, and interpretation of the term is made in accordance with case law.

So, is the coronavirus indeed an event that would deny compensation due to force majeure?

As noted, the law has yet to clearly answer this, but in order to nevertheless understand if compensation is due, one must first examine the terms of a particular agreement (the definition of force majeure, the acts of the parties in cases of force majeure, and the like). In addition, the conduct of the other party in real time is also important—did it give notice immediately upon discovering its inability to meet deadlines established in the agreement, etc.? In any event, the party claiming the existence of force majeure bears the burden of demonstrating that it was indeed prevented from carrying out its duties under the agreement.

A look at the case law of force majeure reveals that Israeli courts tend to interpret section 18 of the Contracts Law very narrowly. The courts and the Contracts Law work from the premise that agreements must be carried out in close adherence to their language, and the courts tend not to allow parties to evade their obligations easily. For instance, the Supreme Court ruled against a suit concerning the voiding of a contract following the Yom Kippur War, which indeed started by surprise, reasoning that since the State of Israel is surrounded by enemy states a war is a predictable occurrence in terms of the performance of contracts. Accordingly, at least for the time being, contractors will be required to demonstrate that they have done all they can to uphold agreements and deliver possession of apartments on the agreed upon date.

However, because the World Health Organization has declared the coronavirus a global pandemic, and since dozens of people are required to enter quarantine, if the spread of the coronavirus worsens, the courts are likely to recognize it as a case of force majeure.