The Essentials of Florida Commercial Contracts
Florida commercial contracts differ from their residential counterparts, and familiarizing yourself with the differences can provide guidance as you navigate this complex field. Commercial contracts typically involve leases, leases with an option to purchase, and sale and purchase agreements. For the purposes of this section, we’ll define commercial contracts as being the equivalent of a residential contract but pertaining to commercial properties.
Like residential contracts, these agreements contain terms and conditions that define the deal the parties have agreed upon. From a legal standpoint, a commercial contract is a promise between the buyer of a property and the seller to complete a transaction that involves the legal transfer of real estate ownership. The buyer (or tenant in a lease) has a legal interest in the property, and neither party can back out without penalty. Generally , the buyer is referred to as the "vendee," and the seller is referred to as the "vendor."
It’s important to note that all of these contracts will need to be modified based on the Florida Association of Realtors Agreement forms. Neither party should assume that the standard form will contain every applicable clause. Commercial contracts, in particular, almost always vary case-by-case due to specific legal requirements of the property being bought or sold. A broker should always consult their compliance manager to make sure all appropriate clauses are in the document.
A commercial contract may only be used for the following transactions:
It is important to note that it is unlawful to use a commercial contract for a residential transaction such as a single family home, a condo, or an apartment. Doing so may lead to legal ramifications and the loss of the transaction.
Provisions Common to Florida Realtors Commercial Contracts
One of the questions we get a lot is what provisions should be included within a Florida Realtors Commercial Contract. The answer depends on the circumstances and the specific transaction, but in this blog we are going to try and answer what provisions you absolutely need and how each provision generally impacts the agreement.
Closing Date- Your closing date is the most important provision in any agreement because if you do not close by the date set in the agreement, you could be in a world of trouble. Usually closing is simply a transfer of money and property (or more precisely the deed) but many times there is more to it than that. If a contract states that closing will occur on September 1st at 2:00PM, then unless the buyer and seller agree to extend the closing date, the buyer may have legal rights against the seller for failing to close. Further, if you as the seller fail to deliver the property free and clear at the closing (as required) the buyer may have the right to sue you for damages.
Time is of the Essence- This provision is intended to support the closing date provision discussed above. Time is of this essence states that all dates within the agreement are to be strictly adhered to. Many commercial attorneys advise against using this provision because under the common law, parties are only required to close by the agreed upon date if "time is the essence" language is included in the respective agreement. A better provision to use is specifically stating that the intervals set forth in the agreement are material terms of the contract. This gives you greater room to argue against having the time of the essence provision if the other party fails to comply. However, you should be aware that if you do not include a "time is the essence" provision, but include "material terms" language, under the common law you must still close by the date set forth in the agreement if the other party does not consent to an extension.
Inspection Period- In order to conduct financial and physical due diligence on a property, you should include an inspection period within the contract to allow you to review this information before closing. Some people say it’s best to ratify the inspection period provision even if you are not concerned with the inspections, because it gives you more leverage to either get out of the contract or ask the seller to reduce the purchase price even just a little bit. Even if you are not concerned with these issues, you should include the inspection period in the agreement to give you a chance to review the inspections for the property.
Liquidated Damages – This provision is generally included in every Florida Realtors Commercial Contract. If the buyer breaches the contract and you have incurred costs associated with pursuing that buyer, this provision allows you to keep the deposit money as liquidated damages, which is usually less than your lawyers fees and costs, punitive damages against the buyer and other damages that you would be allowed to collect in a default lawsuit against the buyer.
Liens and Assessments- In order to protect a buyer from having liens on the property for assessments or unpaid work, this provision allows a buyer to have the right to cancel the contract if a property has unpaid assessments or liens on the property. Further, this provision allows the buyers steady cash flow if the property has a lien for association dues or other items. Of course, this will likely present a problem with the lender if the buyer is trying to sue the seller for cancelling the agreement and keeping the deposit because the seller failed to disclose per this provision.
Responsibilities of Realtors Managing Florida Commercial Agreements
As with any of the real property transactions that we handle, these realtors are important to the process and to ensuring that the transaction is compliant with Florida law. From ensuring that an otherwise contract forming initialed by a buyer and seller is in fact sufficient to bind the parties to a contract in order to something less than a contract (?for example a "lease agreement" instead of a contract for purchase and sale) the role of the realtor to oversight some components of the transaction and ultimately the transaction as a whole is critical to meeting the requirements of Florida law.
Too often we have seen attempted real property transactions where neither broker or realtor were involved and nonlicensed individuals such individuals may not have been aware of the Florida requirements and therefore violated those requirements, resulting in an issue with the transaction. For instance without the appropropriate broker guidance and oversight, a buyer who utilizes an unapproved deposit when making a deposit into escrow may attempt to later use the lack of compliance by an unauthorized party as an excuse for not closing. Accordingly, brokers and their agents play a very important role and they should be mindful of this role of "oversight."
Navigating Legal Issues in Florida Commercial Contracts
As with all real estate, Florida Commercial Real Estate Transactions might potentially face various legal hurdles that could lead to disputes or delays in closing. Real estate attorneys, and especially Board Certified attorneys, have the expertise to navigate the adversities and work toward a favorable outcome. One of the common issues in commercial contracts is dealing with zoning or building permits. A purchaser may find the county requires that they change or modify a commercial property to a meet zoning requirements. In some cases, a purchaser may elect to do nothing and simply terminate a contract rather than incur the expense to comply with local zoning ordinances. Unfortunately, there might be larger obstacles that a realtor cannot easily address. One of the largest, most common issues with commercial contracts involves financing. A lender may refuse to finance a sale at the last minute, leaving both the buyer and seller in a difficult situation. A typical resolution would be the buyer obtaining a new loan from a different lender and/or the seller reducing the price to make the property more attractive to lenders. Realtors often play a valuable role mediating differences between two parties, but mediation has its limits. If all reasonable efforts fail, it may be necessary to litigate a case. Even more likely, it may be necessary to exist litigation to target a settlement. Settlement remains one of the most under-utilized tools in resolving commercial disputes, due in large part to the perceived costs. In many circumstances, commercial disputes may be resolved through alternative dispute resolution (ADR). This can include mediation, negotiation, or arbitration. Litigation on a commercial dispute can be a long and costly endeavor in that both parties are expected to comply with rules, regulations, and procedures with which neither is familiar. The 11th Circuit appeals court noted in Gonnella v. The Diner at 8952 Wilshire Blvd. LLC, 898 F.3d 840, 843 (11th Cir. 2018) that: "[S]ettlement, like litigation, may involve substantial investments of time and money, and the reallocation of assets initially allocated for other uses. A party or lawyer who steers clear of court and favors pretrial settlement will not favor the court’s calendar. We see a federal court system that, for one reason or another, is experiencing ‘docket congestion.’ We see that Chief Justice Roberts thinks that Supreme Court’s criminal docket is too high. We have little reason to think that our district courts are in any better position. If so, we take it for granted that settlement contributes to economy in the court system. Efforts to secure settlements on the eve of trial merit a reward, not a penalty." While the attorneys at Consumer & Commercial Law, P.A. are prepared to go to trial to enforce your contract rights if necessary, the right real estate attorney will know when mediation and negotiation are appropriate in pursuing your goals.
Best Practices When Restructuring Commercial Contracts with Realtors
Consider the following strategies when negotiating commercial contracts with Florida realtors.
On Items without a Red Flag
A no-brainer, but worth repeating – Your negotiating position is incomparably stronger when you discover an item of importance that isn’t flagged in the contract. Ask for what you want or need if the Florida realtor has overlooked it and you can negotiate for more favorable terms. Be reasonable, however — an unreasonable request may be entertained if you present logic and facts to support your position.
Within Reason
When determining how aggressive to be, remember that most Florida realtors have negotiated these terms countless times before. Florida realtors have almost always negotiated ideas the seller thinks are very important to the other side. When it comes to items that are important to you (the buyer), chances are high that the Florida realtor will not be greatly concerned. Thus, items that your Florida realtor might think are "very important" may be received from the seller in almost a cavalier manner. The rule of thumb is that the closer you can get to what you were looking for in the market and the closer to market are the negotiated terms, the less resistance you will receive from the seller.
To whom are you speaking – the Florida realtor, the buyer, or the "decider"? In the Florida commercial real estate market, who has the authority to say "yes" on a point? Is it the Florida realtor, or are you presenting offers to a buyer who doesn’t have the right to say yes? If more than one layer exists, who has the final say on a certain issue? Those in the commercial real estate market in Florida are very aware that being the one who says "yes" is tantamount to saying "no" . Only very few can say "yes" without concern – i.e. – the decider. And at times, that person does not even know what they want (which is often the case). However, to the Florida realtor, both are locked up on a pontoon boat well off the coast of Florida. When the Florida realtors says "yes", they will be fishing upstream, which makes for a struggle that will prove difficult to win. The more time you can buy by moving slowly, the better position you’ll be in if the critical item is, for example, a disputed price.
Time is Money
If you have an item that you need well before closing, you can always pay for it. $250 per day is a commonly employed system of adding to an expense if time-sensitive, but that is only because the market has allowed it. You can negotiate for a faster response and/or eliminate contingencies for a higher price in negotiations with the buyer. You will need to be able to justify this additional cost, however.
Break it down: $5000 for 10 days is $500 per day. Contingencies can be valued by the risk involved. For a $1,000,000 deal, one can offer to pay an additional $10,000 to eliminate a contingency. For a $50,000,000 deal, one may pay only $500,000 to eliminate a contingency. You can use any number as your basis so long as it is a logical and reasonable derivation and you can explain it to the other side.
Recent Developments in Florida Commercial Realty Law
As with any area of law, statutes and case law are constantly evolving. Recent years have seen a number of significant changes in laws that impact commercial real estate transactions in the state of Florida. Familiarity with some of these changes can serve realtors and clients alike in ensuring that contractual agreements reflect current laws and protections.
Changes to Property Code Regarding Liability for Defective Chinese Drywall
One of the largest "hot-button" issues with regard to commercial real estate in Florida in recent years has been the question of liability for defective Chinese made drywall in new construction. As set forth in Florida Statute 553.84, contractors and other construction professionals may be held liable if they were employed to perform work on a property on or after 01/01/2008. The statute of limitations period runs for ten years from the date of occupancy, so the first potential litigation for many properties purchased during the "real estate bubble" could begin in 2018. The liability extends beyond the simple act of installing the defective products, it includes the supply of such products and any acts that contributed to the defect. In addition, Florida Statutes 553.845-553.855 specifically provide for the establishment of procedures for resolving claims, addressing pre-litigation procedures, discovery, procedures for use in all actions or proceedings relating to the claims, the statute of limitations, and defenses. 553.867 clearly states, however, that it does not create a cause of action for damages and is not a waiver or substitution for existing causes of action. In other words, if a cause of action already existed for breach of contract, it exists now under a "new" name and under a different set of procedural rules, and should not be treated as a new cause of action.
Changes to the Florida Lien Law
The Florida Lien Law provides the exclusive means by which lienors can perfect and enforce a lien through the court system. Changes in the language of certain sections have impacted the rights of claimants and the defenses available to condominium associations, owners, and others subject to liens. The absolute right to lien as originally set forth in Chapter 713 has been significantly changed. Presently, contractors and subcontractors may not lien a residential or fee simple property unless the residential or fee simple property owner has signed a contract or purchase order for services or materials being provided. Additionally, any owner (including a builder) of a rough structure on a residential property cannot ever lien the property unless he or she has a contract with the owner of record of the property. Further, the "affidavit of payment" statute requires changes to such affidavits when subcontractors or materialmen have not been paid. Previously, the affidavit could simply be refuted by any subcontractor or third-party claiming non-payment, now the remedy is to seek a recovery under the "lien law."
Common Questions about Florida Realtors Commercial Contracts
Common Questions and Answers About Florida Realtors Commercial Contracts:
How do these contracts differ from residential contracts?
In many aspects, Florida Realtors Commercial Contracts are similar to residential contracts. They contain all the same basic provisions of a sales contract, but the devil is in the details: They sometimes use different terms to refer to the same thing, or vice versa. It is important to always speak to an attorney if you are unsure about the terms of a Florida Realtors Commercial Contract.
How do Florida Realtors Commercial Contracts define "Property"?
The definition of "Property" in a Florida Realtors commercial contract is broad, including "real property, including land, improvements, tenements, hereditaments, and fixtures." Additionally, it can include "personal property" if the form contract specifies it .
What about zoning?
Because the buyer must be satisfied with all aspects of the Property, the buyer will generally have until the end of the Due Diligence Period to cancel the contract for lack of appropriate zoning.
What does it mean to work "subject to" an existing Lease?
"Subject to" means that a buyer is bound by the terms of an existing lease. As long as the seller discloses an Existing Lease, the Buyer cannot use the Seller’s inability to terminate the Existing Lease as a reason for terminating a Florida Realtors Commercial Contract.
What happens if there’s damage before Closing?
If the Property is damaged before Closing and it costs less than $10,000.00 to restore, the parties must Close, even if the Property is not fully repaired. If the damage costs more than $10,000.00 to restore, the Buyer can require the Seller to restore the Property to its original condition and pay the cost of restoration. If the Seller can’t or won’t do that, he is in breach of the contract.