NEWS

New Decision: FAR/BAR “As Is” Contract Interpretation (Diaz v. Kosch)
August 06, 2018

Affirming an $850,000 fee judgment in a residential real estate contract dispute, a guaranteed attention grabber, introduced a trail blazing decision outlining real estate transaction does and don’ts. .” Diaz v. Kosch, Case Nos. 3D17-1498 & 3D17-1621 (Fla. 3rd DCA June 13, 2018).

Identifying the Buyers as “attorneys with substantial experience with real estate transactions and title matters” pulls transactional attorneys and litigation counsel into the well written opinion which graciously, and correctly, comments on one of the RPPTL Section’s outstanding products, painstakingly reviewed and updated continuously:

“The “as is” residential real estate contract developed jointly by the Florida Realtors and The Florida Bar reflects a middle-of-the-road form intended to reduce the legal fees that could be incurred if purchase contracts started from scratch for each transaction. The form reflects a wealth of experience with both successful and failed transactions among professional realtors and real estate attorneys.”

Thus, the Third District Court of Appeal recently affirmed a final summary judgment, arising from a $2.850 million residential real estate contract, ending the Buyers’ fraud and other claims in “a bitter and ‘no hold’ lawsuit against the sellers.” Diaz v. Kosch, Case Nos. 3D17-1498 & 3D17-1621 (Fla. 3rd DCA June 13, 2018).

The short form chronology is:

March 2012. Sellers list their residence for sale. Sellers’ “Owners Property Disclosure Statement” “prominently discloses” that the information is “to the best of Owner’s knowledge,” disclaims any “warranty” and warns that “it is not a substitute for any inspections or warranties.” The Disclosure covers sixteen different areas, marked “no” as to any permitting or toxic substance issues. A buyer is “encouraged to thoroughly inspect” the property, and repeats the Owners’ disclaimers.

Spring 2012. Buyers walk through the property.

September 2012. Utilizing The Florida Realtors and The Florida Bar’s “As Is Residential Contract for Sale and Purchase” the parties contracted for a $2,850,000.00 sale with an initial $50,000.00 deposit and a $235,000.00 additional deposit to be paid at the end of the ten day right of inspection period. The Contract’s “standard” provision’s addressed integration, modification, radon gas, permits and seller disclosures, together with a ten day right of inspection and the Buyers right to terminate by the end of that period.

Apparently, on day nine of the ten day inspection period, Buyers notified their broker of potential permitting issues. The following day, day ten of the ten day inspection period, the Buyers, e-mailing “for settlement purposes only,” accused the Sellers of “active misrepresentations” claimed “diminished value” and threatening “legal fees and litigation with the facts present here could easily be in the hundreds of thousands of dollars and of course during the litigation, the property will not be marketable” which the appellate court parenthetically, if not tongue in cheek, remarked that the Buyer’s communication was “presciently, as it turned out.”

The Buyers made the second deposit stating it was “with full rights reserved.” A week and a half later Buyers e-mailed a Notice of Termination, not claiming a seller breach nor inability to procure financing. The sellers confirmed that they imposed no conditions on release of the deposit however, it appears that the Buyer’s broker required a release!

October 2012, a Buyer which the court referred to as “litigation attorney Richard Diaz” listed four issues: Significant amount of unpermitted work; presence of mold and radon gas requiring significant remediation; As Is contract does not protect a seller from fraud; and, a broker’s obligation “to inform any prospective buyer everything you know.” In response, Sellers confirmed no claim to the deposit.

Two weeks thereafter Buyers sued Sellers. Eventually proceeding on their fourth amended complaint, after significant discovery, and Buyers’ depositions the court granted summary judgment for brokers and the sellers and awarded $850,000.00 in attorney’s fees and costs.

The appellate court ruled that contract paragraph 12(c) regarding inspections, was “unambiguous.”

Right to terminate without penalty. At the end of the inspection, a buyer has two choices: Either a written notice of cancellation before expiration triggering an immediate return of the deposit to the buyer; or, the contract goes hard requiring the buyers’ second deposit. The contract does not provide a “conditional tender” of the additional deposit.

The court helpfully explains that the contract creates “a path to closing the transaction.” After the inspection period is completed, there is: a walk through the day before closing; and, between the inspection period and closing seller has a duty to provide certain documents and information. The duty to provide documents is not triggered until after the inspection period is over. Buyers right to cancel is not an “open-ended extension” to investigate records or documents, especially light of the contract’s “time is of the essence” provision. Nevertheless, the appellate court goes out of its way to note that the Sellers paid over $32,000.00 to “permitting consultants” to assist with these issues, including meeting with the Buyers.

The court also laid out a path for extending the inspection/cancelation time period. Unremarkably, the extension period could have been extended by the parties’ written agreement. The court also remarks that there could be an extension of the inspection/cancellation period by the buyer “furnish additional consideration beyond that required by the existing agreement. [To this commentator it is certainly understandable that additional consideration should support an agreement, it is unclear how the decision leaps from additional consideration, in and of itself, without an agreement to an inspection period extension. Particularly because there was no mention in the decision of actual additional consideration this language may be considered dicta].

Radon: Beginning with the State statutory radon gas disclosure, and then that the Buyers were “experienced real estate attorneys familiar with radon tests” the decision markedly states the Buyers did not undertake testing during the inspection period, could have inspected, and did not establish that radon or the permitting matters were not observable.

Waiver: Waiver was not deemed to be an issue because “following accusations of fraud,” the accuser may not “justifiably rely” on the representations of the accused, and substantive negotiations aimed at resolving the dispute.” Citations deleted.

Claim to the Deposit: Anticipatory repudiation excused the Sellers from scheduling a closing or even demonstrating the traditional “ready, willing, and able to close.”

The appellate court summed up the Buyers’ efforts as seeking “to avoid losing the Property to a backup buyer, while simultaneously attempting to preserve a claim to reduction in the purchase price.” Buyers’ conduct just “exacerbated” the situation when they launched the bitter, no holds barred lawsuit.

The “moral” to this “story” may be first, at the negotiation stage, not to “reinvent” the “wheel”. The praise heaped upon the AS IS contract form, quoted at the top, could embarrass its drafters except that they deserve significant praise for their volunteer efforts, literally consuming hundreds of hours each year seeking to anticipate intricate issues to protect Florida’s citizens and investors. Proclaiming the text unambiguous, at least in the circumstances provided, transactional counsel will likely be looking to the Contract’s language. Noting the copyright on the form, please always provide recognition to the drafters!

The decision provides significant guidance regarding conduct surrounding the inspection period. Especially in the face of “bullies,” the decision will seem heaven sent. On the other hand, when a buyer keeps pushing the envelope, this will assist buyer counsel’s efforts to educate a buyer/client that limitations will be enforced and that the threats of expensive litigation likely will not be availing. For litigation counsel this decision will be handy to oppose claims if not in a motion to dismiss, then at the summary judgment level, including fraud claims.

Certainly, this decision will remind everyone of the adage attributed to President Abraham Lincoln. “Honest Abe”, known because of his reputation epitomizing professionalism, remains a hallmark standard for all attorneys. His applicable adage in this circumstance, of course, is “an attorney who represents himself has a fool for a client.” Enough said.

Knowing which version of the “AS IS” contract was utilized would assist practitioners to no end. We would know if the contract form text is the same as what might be in front of us. Though not stated in the opinion, it appears from the Miami-Dade Clerk’s docket that the contact attached to the complaint is the 2012 revision, bearing “Rev 8/10©2010 Florida Realtors and The Florida Bar.”

Many thanks to Fred Jones for bringing the decision to my attention immediately (delays in reporting of course mine) and to Marty Schwartz for also reminding. Kudos of course belong to Fred Jones and the committee members and other chairs, reviewing contract provisions selflessly to assist practitioners.

Michael J. Gelfand

Past Chair

Real Property, Probate and Trust Law Section

of The Florida Bar

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Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section

© 2018 Michael J. Gelfand

Michael J. Gelfand

Florida Bar Board Certified:

Real Estate Attorney

Condominium & Planned Development Law

Florida Supreme Court Certified Mediator:

Civil Circuit Court & Civil County Court

Fellow, American College of Real Estate Attorneys

The only thing necessary for the triumph of evil is for good men to do nothing.

- Edmund Burke


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