Typical Troublesome Scenario
You have just found the perfect home and you are ready to sign the purchase offer. Either you failed to fully read the contract or your home state’s laws allow you the right to terminate the contract if you are dissatisfied with the home inspection, so you assume you have the same rights in Florida and happily sign the contract. The home inspection report later reveals problematic issues that prompt you to want to immediately terminate the contract, but you soon learn that the form contract you signed does not afford you with such right. Instead, you are now forced to proceed under a contract to purchase a home you no longer desire.
Florida law does not afford a buyer the right to cancel a purchase contract on the basis of such buyer’s dissatisfaction with the terms of a home inspection report. Accordingly, if the buyer desires such right, then it must be provided for contractually between the parties. However, many form contracts on their face do not provide for a self-operative cancellation right by the buyer, unless other contract terms are not met.
The Residential Contract for Sale and Purchase (approved form by The Florida Realtors and The Florida Bar) (“FR/BAR Contract”), for example, which is commonly utilized throughout the State of Florida, generally provides for the following inspection terms:
- Fifteen (15) day inspection period;
- Seller obligation to repair warranted items up to the maximum repair limit (“Repair Limit”) of 1.5% of the purchase price, unless contractually modified;
- If repairs exceed the Repair Limit, then within five (5) days after a parties’ receipt of the last estimate, (i) seller can elect to pay the excess to repair warranted items, or (ii) buyer can accept selected items in excess of the Repair Limit as-is, or (iii) failing (i) and (ii), either party may terminate the contract.
As indicative of the above, the FR/BAR Contract provides no immediate buyer contract termination right. If the Repair Limit is not exceeded, it is mandatory for the Seller to undertake repairs. Alternatively, even if the Repair Limit is exceeded, the FR/BAR Contract terms do not provide any easy escape for the buyer. If a seller is motivated to sell, he/she will the make the repairs to close the deal, even if the cost to do same exceeds the Repair Limit. Under such circumstances, the buyer must purchase the home or be in default of the contract for failure to close.
The Sales Contract (Residential Improved Property) (approved by NABOR, Marco Island Association of Realtors, Inc., and the Collier County Bar Association (“NABOR Contract”) provides for variation with respect to inspection contract termination as follows:
- Fifteen (15) day inspection period;
- Seller can elect to refuse buyer’s repair and/or credit request of warranted items (“Seller’s Refusal”);
- Upon Seller’s Refusal, buyer can Terminate the contract or purchase the property as-is.
Like the FR/BAR Contract, the NABOR contract provides contract control to the Seller in the area of inspection repairs, and in a down market when sellers want to move properties, it is unlikely that many sellers will choose not to make repairs and afford the buyer with the right to terminate the contract.
Right to Inspect and Cancel
To place the buyer in contract control and alleviate the stress and surprise as a result of the home inspection, I recommend to buyers to include a right to inspect and cancel rider (“Rider”) to their contract. It allows buyers to terminate the contract for any reason, so if there is evidence of mold and, although the seller is willing to remediate same, the buyer does not want to buy the house knowing it has such mold, the Rider allows the buyer to immediately cancel the contract. It is also advantageous because it allows the buyer to use the Rider to renegotiate the contract by asking the seller to make repairs or provide credits not otherwise contractually required.
If there is concern about the seller’s lack of reception to such Rider, then I suggest either shortening the inspection period or including an additional contract rider to permit the seller to accept back up offers on the property during the inspection period. This should allow the buyer’s right to cancel more palatable to the seller.
Other Important Considerations
To ensure a buyer’s right to terminate a purchase contract under the Rider, a buyer will need to comply with the following contract provisions:
- Notice. It is imperative that any required notice by buyer to the seller under the contract be delivered strictly in accordance with the contract terms. Under the FR/BAR Contract, notice must be in writing and may be made by mail, personal delivery or electronic media. Buyer’s failure to abide by such terms can render ineffective, a buyer’s notice to seller of contract termination. Attention must not only be made to the proper form of notice, but also to whom notice may be delivered. Determine whether the contract speaks to whom may accept or receive notice. For example, the NABOR Contract specifies that unless otherwise provided by law, delivery of notice is effective when given by a party or that party’s broker or attorney to the other party or that other party’s broker or attorney. The FR/BAR Contract has similar language.
- Time Periods. Verify whether the contract specifies calendar or business days in computing time periods. Diary contract deadlines to ensure the buyer does not waive any contract right for failure to timely provide notice to the seller. If the contract provides that “time is of the essence”, as the FR/BAR Contract and NABOR Contract do, no leniency will be afforded for buyer delays.
Remember, before you execute that purchase contract, ensure you have the right to inspect and cancel the contract if the home inspection is not acceptable to you. Additionally, pay close attention to all contract deadlines and notice provisions to ensure you have not waived any rights or failed to comply with contract terms, which could prohibit your successful contract termination and return of deposit. Otherwise, your initial dream purchase could be your next disaster.