A common worry that we hear from agents and buyers is that any issues with a home purchase need to be resolved prior to closing, or else the buyer will have “closed over” the issue and will have no recourse against a seller who has acted badly. The thinking is that if the buyer knew about the seller’s breach of the contract and closed regardless, they have waived any claim they could have otherwise asserted. A Florida appellate court recently weighed in on that notion, and their response was “nope.”
Just the Facts Ma’am
The case of Smith v. Carlton, 2022 WL 4390651 (Fla. 5th DCA 2022) dealt with parties to the purchase and sale of a horse farm. They used a Far/Bar “As Is” contract form, which states in Paragraph 6(a) that “at Closing, Seller shall have removed all personal items and trash from the Property.” The buyers inspected the property the day before closing, and it was a wreck –trash and debris everywhere. But the sellers promised that they’d take care of it by closing the next day. With that understanding, the buyers proceeded to close. Since you are reading this, of course the trash didn’t get removed. And there was a lot of trash – about 15-20 dumpster loads. After closing, the buyers demanded that the sellers reimburse them for the cost of trash removal, and the sellers refused. They argued that the buyers had waived any right to demand relief for that provision in the contract by moving ahead with closing.
Layin’ Down the Law
The appellate court shot down that argument quickly. It pointed to the fact that the parties’ contract, in paragraph 15(b), gives a buyer two remedies upon a seller default: they can choose to force a seller’s performance of the contract, or they can file an action for damages against a seller. The appellate court held that the contract form clearly contemplates the idea that claims for damages may be prosecuted after a closing has occurred and that the buyers’ pre-closing knowledge of a potential breach did not constitute a waiver of that right. On that basis, the appellate court entered a ruling in full in favor of the buyers. In the end, the sellers paid the Buyers’ damages and paid their attorney fees for having to prosecute a lawsuit.
Options are Good
How does that impact a buyer’s calculation when they are faced with a seller who failed to live up to their obligations under the contract? Most importantly, it means that if a buyer discovers some breach by a seller (the condition of property has changed, the seller failed to disclose something, the seller ran off with personal property that should have been included in the deal, etc..), they do not need to feel boxed into the decision of “close or cancel.” Instead, they may move ahead with their closing, secure in the knowledge that they retain a right to seek damages from the seller. That right is all the more important when the nature of a seller’s breach is relatively minor – a minor breach may not rise to the level of being “material” and allow a buyer to terminate the agreement. In that case, a buyer may risk their deposit if they decide to cancel a contract due to a minor breach on the seller’s part. The safer choice for a buyer in that case may be to simply pursue the seller’s minor breach via a post-closing action for damages. In any case, the fact that a buyer is not limited to a single remedy upon a seller’s breach is good from a practical standpoint and is helpful in allowing a non-breaching party to choose the remedy which best meets its needs and risk appetite.
The above analysis is a slight oversimplification of the law in this area, and each case should be looked at with fresh eyes. As always, if you or your clients ever need to discuss this further, please reach out to your friendly local real estate attorney.
