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COVID-19’s Impact on Buyer’s Obligation to Close

January 12, 2021
Mark A. Limardo, Michael R. Neidell and Zachary E. Freedman, Law Clerk
Harvard Law School Forum on Corporate Governance

Harvard Law School Forum on Corporate Governance, the top online resource for discourse on corporate governance, recently published an article authored by Tax partner Mark Limardo, Corporate partner Michael Neidell, and Corporate law clerk Zachary E. Freedman, “COVID-19’s Impact on Buyer’s Obligation to Close.” The article discusses AB Stable VIII LLC v. Maps Hotels and Resorts One LLC et al., in which the Delaware Court of Chancery ruled that a seller’s response to the COVID-19 pandemic breached the seller’s obligation to conduct the target company’s operations between signing and closing “only in the ordinary course of business consistent with past practice in all material respects.” As a result, the buyer was not obligated to close on the sale and was entitled to the return of its deposit and costs. The authors remind that “a seller is not fully protected against COVID-related closing risk by a COVID-related MAE exclusion. An ‘ordinary course’ covenant should be carefully tailored, so that a seller’s actions in response to the COVID-19 pandemic (and other emergency conditions) would not be deemed to violate the covenant or require it to seek the buyer’s consent (reasonable or otherwise).”

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