Massachusetts Land Court Rejects COVID-19 Impossibility Defense for Real Estate Purchase Transaction | Practical Law

Massachusetts Land Court Rejects COVID-19 Impossibility Defense for Real Estate Purchase Transaction | Practical Law

In Martorella v. Rapp, the Massachusetts Land Court dismissed a purchaser's complaint seeking relief for failure to obtain financing and close on a real estate purchase and sale during the COVID-19 pandemic. The Land Court found that the impossibility doctrine under Massachusetts law did not excuse the purchaser's obligation to perform under the purchase and sale agreement.

Massachusetts Land Court Rejects COVID-19 Impossibility Defense for Real Estate Purchase Transaction

by Practical Law Real Estate
Published on 11 Jun 2020 • Massachusetts
In Martorella v. Rapp, the Massachusetts Land Court dismissed a purchaser's complaint seeking relief for failure to obtain financing and close on a real estate purchase and sale during the COVID-19 pandemic. The Land Court found that the impossibility doctrine under Massachusetts law did not excuse the purchaser's obligation to perform under the purchase and sale agreement.
In Martorella v. Rapp, the Massachusetts Land Court dismissed a purchaser's complaint seeking relief related to financial hardship experienced due to the 2019 novel coronavirus disease (COVID-19). The Land Court denied the purchaser's request for injunctive relief and rejected the purchaser's defense under Massachusetts' impossibility doctrine because the purchaser acknowledged in the purchase and sale agreement that there were no contingencies to the purchaser's performance. ( (Mass. Land Ct. June 1, 2020).)

Background

In February 2020, Christopher Martorella purchased a residence that was subject to a partition action from a commissioner at a public auction for approximately $1.8 million. As the winning bidder, Martorella signed a purchase and sale agreement. The agreement required Martorella to pay a deposit of $182,700, with the balance of the purchase price due at closing on March 16, 2020. The agreement:
  • Did not include a financing contingency.
  • Stated that the commissioner could retain the deposit as liquidated damages if Martorella failed to close.
Martorella attempted to obtain financing for the property. Martorella's business partner applied for a home mortgage under his name and Martorella's wife's name. While trying to obtain financing, Martorella requested and obtained two extensions of the closing date: first, to March 23, 2020, and second, to April 6, 2020. During this time, Martorella's wife was diagnosed with COVID-19 and later hospitalized.
Martorella attempted to negotiate a third extension of the closing date but was unsuccessful. On April 4, 2020, Martorella filed a complaint against the commissioner and other interested parties (defendants) in the Massachusetts Land Court:
  • Requesting a temporary restraining order (TRO) to prevent the commissioner from selling the property.
  • Stating that his wife's health and "[t]he COVID-19/coronavirus crisis has made it impossible for me to continue with the closing on April 6, 2020."
  • Requesting a 90-day continuance of the closing so that the parties can close on the purchase and sale "as initially planned before the unforeseen coronavirus emergency."
The Land Court denied Martorella's motion for a TRO. Defendants filed a motion to dismiss the complaint.

Outcome

The Massachusetts Land Court granted the defendants' motion to dismiss Martorella's complaint. The Land Court held that the impossibility doctrine under Massachusetts law did not excuse Martorella's failure to perform under the purchase and sale agreement because he acknowledged in the agreement that there were no contingencies to his performance. Specifically, the Land Court noted that:
  • The agreement addressed Martorella's financing obligations and he knowingly assumed that risk.
  • Martorella's wife was not a party to the agreement, so her later incapacity did not excuse his performance under the agreement.
The Land Court acknowledged that its ruling "may feel harsh," but stated it is consistent with Massachusetts precedent.

Practical Implications

Although not binding precedent, the Massachusetts Land Court's decision may serve as a warning for other financially distressed purchasers seeking to assert an impossibility defense to avoid the obligation to close a real estate transaction during the COVID-19 pandemic. Purchasers should seek the advice of counsel when entering into a real estate purchase and sale agreement to:
  • Ensure that the agreement properly protects the purchaser's interests.
  • Avoid the risk of default if the purchaser cannot obtain financing.
For a collection of resources related to COVID-19, pandemics, and business interruption content, see Real Estate Global Coronavirus Toolkit.