The real estate market has once again shown its resilience; more properties are changing hands now than we’ve seen in several years. As competition increases for developable land and developers get back into the contracting and approval processes, it’s important to remember some fundamental issues regarding Florida law.
Most people are aware that a contract for the sale of real property in Florida must be in writing. They may not realize, however, that to properly protect their rights under that contract everything that they agree upon after the contract is signed must also be in writing. Here is a scenario that could play out between parties acting on a relationship rather than following the terms of their written agreement:
A buyer and seller enter into a purchase and sale agreement for a parcel of vacant land. The buyer places a deposit in escrow and begins the diligence and development approval process, the parties having agreed that the deposit is fully refundable if the buyer terminates the contract prior to the expiration of the diligence/approval period. The seller, wanting the buyer to continue with the deal and close, agrees to cooperate with the buyer as the buyer seeks development approvals. As the expiration of the diligence/approval period approaches, the buyer realizes that it needs more time to obtain approvals before it can commit to the deal. The buyer raises the issue of an extension with the seller, the parties go back and forth on the phone over a few days, and the diligence/approval period expires without the buyer having obtained all necessary approvals or terminated the contract. The buyer takes this action, or non-action, because during their discussions, the seller has told the buyer that it supports the project and will continue to assist with approvals. The seller understands that the buyer is getting close to the end of the process with the municipality, and everyone believes that approvals are forthcoming. When instead the buyer’s plans are rejected through no failure on the part of the seller to cooperate, the buyer attempts to terminate the contract and obtain a release of the deposit. The seller refuses, since the diligence/approval period under the contract has expired. The buyer, believing that it properly relied on the seller’s oral agreement to extend this period pending receipt of final approvals, must now sue the seller for the return of its deposit.
The issue here, somewhat similar to that discussed recently by the Florida Supreme Court in the case of DK Arena, Inc. v. EB Acquisitions I, LLC, 112 So.3d 85 (Fla. 2013), is whether the Florida statutory requirement that a contract be in writing can be overridden. Simply, the question is whether a later oral agreement can override the requirements of an executed contract when one party makes a promise to the other to induce a certain behavior, the other relies on that promise and acts as expected by the promising party, and the only equitable result would be to allow the oral agreement to stand. In Florida that oral promise may not be enforced, even if it results in what may appear to be an unfair result.
In DK Arena, the Florida Supreme Court remanded the case back to the district court to determine which party should receive the security deposit held under the contract. Due to a finding that the seller defaulted under the contract by failing to participate in the approval process, the district court determined that the seller was not entitled to the deposit. However, had the seller not defaulted and the only issue before the court was the oral promise, the result likely would have been different.
If the buyer under our facts sues to obtain a return of its deposit, it likely would not succeed as there is no evidence of a seller default. In light of the Florida Supreme Court’s decision, it is imperative for a contract buyer to act based on the terms of the written contract until those terms are amended in a writing signed by both parties. Reliance on a relationship may be detrimental, and costly, in the end.