Last Update: 02/24/16
Destin, Florida, is a beautiful place to plan a waterfront subdivision.
True story. Back in the summer of 2007, when “Umbrella” by Rihanna was a new summer hit and “Transformers” was the summer blockbuster, a contract was signed in Destin, Florida, for the sale of a six-lot waterfront subdivision for around three million dollars; the property was bought at auction “as is.”
By January 2008, the deal soured – a lawsuit was filed by Thomas J. Duggan, L.L.C. (the buyer) (“Duggan”) against Peacock Point, L.L.C. (the seller)(“Peacock Point”), seeking a court order directing that their transaction be legally rescinded because the land was not as the seller had represented to the buyer.
As Is Land Buy Crashes and Burns When Buyer Cannot Immediately Build Because City Will Not Issue Permits
Specifically, Duggan found out that the property was not ready for residential construction even though Duggan argued that this is exactly what Peacock Point had represented as being the case when they were negotiating the contract.
The buyer had a problem on its hands because the City of Destin would not issue building permits until there was a certification of completion in place. Duggan thought he was buying land where homes could immediately be built, but this was not correct. So, Duggan sued.
At the trial level, Duggan lost. The circuit court judge found that there wasn’t a real villain here: this was all a big mistake. However, even though there was a mutual mistake of fact, the plaintiff didn’t meet his burden of providing evidence to the court that their contractual agreement placed the risk of a mistake upon the seller, and not the buyer of the land.
Duggan didn’t give up.
He appealed that decision to the Florida appellate court. There, he argued that the trial court was wrong because of either of three reasons:
(1) Appellees’ misrepresentation, whether fraudulent or innocent;
(2) Appellees’ failure to make full disclosure, despite the “as is” provision; or
(3) mutual mistake of fact.
Duggan lost again.
The Florida appeals court found that the trial court did not abuse its discretion when it would not rescind the contract. Why?
Buyer Sues To Rescind the Land Sale and Loses: Seller Keeps the Contract Money
1. There was no fraud here.
No one made any false statement (i.e., LIED) about a material fact. In fact, there was evidence at trial from the personal representative of Peacock Point, a man named Mike Sims, that Sims truly believed when the deal was made that it wasn’t necessary to have the City’s certificate of completion before any residential construction could begin.
The Florida appeals court didn’t agree with Duggan that this innocent misrepresentation by Mr. Sims and his company would legally justify rescinding a contract. Why not? Because here, the seller did not possess such superior knowledge: in fact, this information was available for Duggan to learn as part of the public record.
2. There was no failure by the Seller to disclose a material fact.
Under Florida law, the seller’s duty to disclose in a commercial property deal isn’t as strict as it is in residential real estate transactions. There was evidence that Duggan asked the auctioneer if the land was “buildable” with all the needed city approvals and after checking with Sims, the auctioneer told Duggan it was.
Duggan’s argument is that here, Mike Sims had a duty to disclose there was no certificate of completion. The court didn’t see it Duggan’s way – pointing out that this was an “as is” contract with language where Peacock Point disclaimed “any warranties or representations of any kind or character, expressed or implied, with respect to the property, including, without limitation … habitability, design, quality, merchantability, condition, environmental status, matters of survey or fitness for any particular purpose[.]”
Also, the court pointed to other language in the contract where it was agreed that “Buyer has conducted such investigations and inspections of the Property as it deemed necessary and/or appropriate and shall rely upon same.”
So, Duggan lost this argument, too, as the appeals court pointed to the language of an earlier case, Wasser v. Sasoni, 652 So.2d 411, 413 (Fla. 3d DCA 1995), where it states “…a sophisticated purchaser of commercial property who agreed to an `as is’ purchase contract, had ample opportunity to conduct inspections, and could have discovered an alleged defect through exercise of ordinary diligence, may be disgruntled, but does not have a cause of action in fraud.”
3. The risk was on the buyer here.
Because the contract had an “as is” provision, legally this placed the risk of a mutual mistake on the buyer, Duggan, and the court equitably cannot rescind an agreement where the contract has already assigned the risk. In other words, when Duggan bought “as is” he agreed to bear the risk of this sort of problem.
This controversy over six waterfront lots became the Florida court case precedent, Thomas J. Duggan, LLC V. Peacock Point, 89 So.3d 283 (Fla. 1st DCA 2012), and you can read the full opinion here.
Larry Tolchinsky’s Tip:
Lots of lessons here — among them, have a Florida real estate lawyer look over your deal before you sign on the dotted line, especially in commercial real estate transactions and also in “as is” offers – because in both situations, buyers are taking more risk than they may realize.
A good piece of advice when you and your family are purchasing or selling your family home in one of the biggest transactions of your life is to at least talk with a Florida real estate lawyer. Getting someone to review all of the paperwork including the all important promissory note, isn’t as costly as most of us think it is. And it’s always a lot cheaper than paying to fix a problem after a closing occurs. 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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