Posted By Larry Tolchinsky on September 20, 2016
When things go bad in a Florida real estate transaction, the buyer’s first thought may be to walk away. Just get out of the deal. Find another home to buy. However, is this possible? Can the buyer cancel transaction?
Under Florida law (contract and case law), a buyer is able, under certain circumstances, to terminate a residential real estate contract and walk away from the deal without penalty. One way a buyer can get out of a deal is by seeking “rescission.”
What Is Rescission?
Rescinding a real estate contract means the contract is considered under the law to have “no force and effect from the beginning.” Borck v. Holewinski, 459 So.2d 405, 405 (Fla. 4th DCA 1984). The contract is canceled.
In the words of one Florida court, it’s “unmade.” Borck, 459 So.2d at 405.
Is Rescission Defined in the Contract’s Language?
In Florida, some real estate contracts have specific provisions related to rescission. The contract may describe the exact circumstances that will allow for the rescission of the contract.
The Case of the Land-Locked Property
An example of rescission in a real estate contract occurred in the case of Hall v. Higgs, 452 So. 2d 1113 (Fla. 2d DCA 1984). There, the buyer sought to cancel the contract after learning the seller had failed to provide ingress to and egress from the land. The right to rescind was a defined term in the contract.
The contract was specific: if the seller could not provide the purchaser with a legal means to enter and leave the property, the buyer could cancel the deal. The seller was unable to provide access. The buyer sued for rescission, and won. The contract was canceled, and the earnest money was refunded.
Rescission Under Florida Contract Law?
Under Florida law, just because a real estate contract does not include the right to cancel or rescind the deal, it doesn’t mean the buyer is left without that remedy.
In these situations, the buyer will need to go to court and ask the Judge to cancel the deal. If successful, the Judge will simply enter an Order rescinding the deal with the goal of returning the parties to the same position they we are in prior to entering into the transaction.
In some instances, that Order is then recorded in the real property records of the clerk’s office in the county where the home or condo is located.
Grounds for Legal Remedy of Rescission
When does Florida law provide for the legal remedy of rescission? Canceling a real estate contract by law can happen because of several different issues or problems arising during the closing process.
Fatal Title Defect
For example, the buyer can choose rescission of the real estate agreement if he or she learns that their is a fatal title defect. If the seller is unable to transfer clear title at closing, then the buyer can cancel the deal. See, Am. Jur. 2d, Vendor and Purchaser §§ 279, 280.
If the buyer was a victim of fraud in entering into the deal in the first place, then he or she can file a lawsuit to have the agreement undone. See, Am. Jur. 2d, Vendor and Purchaser, §§ 278, 282 to 285.
Not every detail is known to the parties when the real estate sales agreement is signed. If the parties have made a real estate contract but they’ve done so after a mistake (”material mistake”), then Florida law will allow for rescission of the contract. Mar-Char Enter., Inc. v. Charlie’s The Lakes Restaurant, Inc., 451 So.2d 930 (Fla. 3d DCA), review denied, 461 So.2d 113 (Fla. 1984).
Status Quo After the Rescission
One of the key elements to canceling a real estate contract under Florida law is its “status quo” requirement. This is the need to place both the buyer and the seller in the same place they were in before the deal was struck.
Once the contract is rescinded, it’s of no force or effect under Florida law. It’s “unmade.” Courts will “unmake” a contract only it’s fair for both sides. Neither the seller nor the buyer should suffer loss as a result of the rescission.
Therefore, any benefit that either side got from the other has to be returned as a part of the rescinding of the contract. Am. Jur. 2d, Vendor and Purchaser § 521. The buyer, for instance, gets the earnest money deposit refunded to her.
What if the buyer already started making changes to the property and now wants to cancel the deal? The buyer can obtain a legal rescission only if he or she can show that paying a sum of money to the seller will be sufficient to make the seller whole, even if the buyer has made changes to the property. Smith v. American Motor Inns of Florida, Inc., 538 F.2d 1090 (5th Cir. 1976), on reh’g, 544 F.2d 900 (5th Cir. 1977).
Example of Court Denying a Rescission
There are certain circumstances where where judges have denied buyers the right to rescind a real estate contract. For instance, if the deed conveys more than either the seller or the buyer thought was being sold, then the contract may not be canceled by the court. See: May v. Holley, 59 So. 2d 636 (Fla. 1952).
The Building on the Beachfront Lot
In May v. Holley, some vacant land in New Smyrna Beach was sold to a man named T.W. Bush. A real estate contract was signed and the transaction was moving towards closing without any issues.
Things changed when the survey came back, and the parties discovered that a building thought to be entirely on the seller’s lot (that they did not sell) extended into the adjoining property (the property that was being sold to Mr. Bush).
The building encroached onto the lot being sold to Mr. Bush by 4 feet and 7 inches, which Mr. Bush wanted removed. Of course, the sellers didn’t want the building removed.
So, Mr. Bush sought to cancel the deal. He wanted to rescind the deal.
As a result, Mr. Bush filed a lawsuit that went all the way to the Florida Supreme Court. Result: no rescission. “A purchaser has no right to rescind because he has obtained more than he bargained for,” explained the Supreme Court.
There were other legal remedies available to Mr. Bush, but canceling the real estate contract because he got more than he bargained for was not among them.
(Another scenario: if the land is targeted taken by the government under its eminent domain powers, after the contract is signed, the buyer cannot move for rescission of the real estate transaction. Arko Enterprises, Inc. v. Wood, 185 So. 2d 734.)
Do You Want to Cancel Your Real Estate Contract?
If you are in the process of buying a Florida single family home or condo, then you may find yourself in a situation where you think it is wise to extricate yourself from the transaction. Can you cancel the contract? Will a judge agree to rescind the real estate agreement?
First things first, you should read the contract to see if rescission is a remedy under the terms of the transaction.
Second, if there is no contract provision for rescission, you should speak with a real estate lawyer to determine if Florida contract law will allow you the legal relief of canceling the agreement.
The bottom line is this, if you are facing situation where you believe rescission may be appropriate, then a good piece of advice is to speak with an experienced Florida real estate lawyer to learn about your rights. Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.
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