Often, a buyer and a seller let the ink “e-dry” on the terms of the Contract before its delivery to an escrow agent. Consequently, a residential home buyer overlooks Paragraphs 6(b) and 18(d) of the Far/Bar “AS IS” Residential Contract for Sale and Purchase and the Residential Contract for Sale and Purchase (collectively, the “Contract”) and a potential BIG expense of prosecuting an unruly tenant eviction post-closing. Paragraphs 6(b) and 18(d) require the seller to disclose lease and other occupancy agreement information to the buyer in writing and provide a mechanism for the buyer to terminate the Contract in certain circumstances. For example, a buyer could timely opt to cancel the transaction if a lease is unacceptable to the buyer’s needs, the seller conveys lease misrepresentations, or a tenant fails or refuses to confirm lease information. I recently represented a purchaser in an eviction whose home was subject to a verbal lease. The buyer missed lease information due-diligence deadlines and could not cancel the transaction without placing the earnest money deposit at risk. Several months and thousands of dollars later, the client secured a final judgment of possession and writ of possession for the property. The client was happy with the result but far less thrilled with paying litigation attorney’s fees after closing. When Paragraph 6(b) is selected in a residential transaction, a buyer should make the following inquiries:
- Is the lease a written lease or a verbal lease? Written leases generally expire upon a previously agreed date, while a verbal lease without a specific term may be terminated with an appropriate statutory notice. Additionally, written leases may have more contractual duties and obligations owed to a tenant than what is required under Florida’s Landlord and Tenant Act. Whether a purchased residential property is subject to a written or verbal lease, the buyer must be aware there are mandatory landlord statutory duties, and that other written contractual duties could be owed to a tenant. The seller must provide lease information in writing within five days of the Contract’s effective date. The buyer may cancel the transaction within five days after receipt of this lease information. Be proactive and seek out rental information early in the transaction – the buyer might determine the occupancy agreements to be unacceptable and avoid inspection expenses.
- Is there a security deposit? If so, ensure the seller transfers the security deposit to the buyer at closing and the buyer is aware of statutory landlord duties pertaining to a tenant’s security deposit. Failure to comply may result in a future lawsuit where the successor landlord pays the tenant damages in the amount of the missing security deposit and the tenant’s prevailing attorney’s fees.
- Is the tenant behind on rent or in non-monetary default? A buyer enters a potential lawsuit immediately at closing if the tenant is in default of a lease. Also, many residential buyers who have never leased Florida real property before their transaction are surprised to learn that a Florida landlord must first provide an opportunity for a tenant to attempt to cure a monetary default ( every time, too!) as well as generally offer the opportunity to cure a non-monetary default before filing an eviction. Accordingly, a buyer’s property renovation plans may be placed on hold when a tenant in default unexpectedly cures said default!
The lesson to learn? Buyers should proactively demand that a seller discloses in writing all of the required lease information within five days of the Contract’s effective date per Paragraph 6(b). Moreover, buyers should request all information afforded under Standard D of the Contract ten days before closing. If a tenant default issue exists, and the buyer does not wish to cancel the Contract, then the buyer should consider an escrow holdback agreement or credit amount for future expenses related to a potential lease compliance dispute or eviction. If the seller rejects the preceding solutions, a buyer can determine if the buyer wishes to close or cancel the transaction. If the buyer does nothing during this time, then the buyer must close and cannot look to the seller for any future expenses caused by a problem tenant. When in doubt, contact your local real estate attorney and determine if a buyer’s purchase expectations may be met when Paragraph 6(b) is checked on your Contract! An attorney consult could save a buyer much heartache, a lawsuit and, thousands of attorney’s fees!
