Usually, the main parties to a residential real estate transaction are the seller and the party to whom the seller chooses to sell, otherwise known as the buyer. However, there are times when a third party becomes an indispensable party to a real estate transaction. This is because of the third party’s power to purchase the property despite the seller’s desire to sell to a buyer of his or her choosing.
It’s a nice place for this third party to sit, having the right — the ability to buy or not — to prevent another party from purchasing a piece of real estate, right?
Sellers, however, may not think it’s so nice. For a residential seller, it can be frustrating to have a property ready for sale and not be able to sell it to a party that is ready, willing, and able to make a deal.
Still, it’s legal to do in Florida, but how? There are two ways that this can happen under Florida law which are (1) an option to purchase; and (2) the right of first refusal.
1. Option to Purchase
In Florida, a seller and a buyer can enter into a legally binding contract that creates an “option,” to purchase real estate. These agreements can look a lot like a real estate contact with provisions that detail the terms of the tranaction. Things like the legal description of the property (book and page or metes and bounds); the names of the seller and the potential buyer; the sales price; cash or financing terms and more. See, Old Port Cove Holdings, Inc. v. Old Port Cove Condominium Ass’n One, Inc., 986 So. 2d 1279 (Fla. 2008)
Key here, though, are the provisions that give the “option holder” the right to “exercise an option” to purchase.
Most options have a deadline and during the option period the seller cannot sell the real estate to any other party (unless of course, the option holder waives his or her rights to purchase the property). The seller is legally prevented from selling the real estate while the option holder decides whether or not he or she wants to buy the property.
Essentially, from the seller’s perspective, he or she has made a deal to sell the home to the option holder if the option holder so chooses to buy. It doesn’t matter if Bill Gates swoops in and offers twenty times the price, the seller cannot sell because he or she is bound by the terms of the option agreement.
During the option period, the option holder can decide to buy the property under the terms that have been spelled out in the agreement or do nothing at all (or they can sell the option to someone else). If the option holder does nothing, then usually the option expires by its own terms once the deadline passes.
The option holder usually has no legal duty to do anything while it holds this power. Doing nothing and allowing the deadline to pass is usually enough to terminate an option agreement. If and when that happens, the seller is then free to sell the home to any party he or she so chooses (like Bill Gates).
2. Right of First Refusal
Under Florida law, a contract can be created between an owner of a home or condo and someone interested in buying that property that gives the interested party a right to be the first choice as buyer if and when the owner decides to sell the real estate (this scenario often occurs with condominium associations).
Here, the owner isn’t actively wanting to sell the property and isn’t looking for a buyer. Instead, there is someone who is interested in purchasing that property should the owner decide to sell.
Essentially, the party with the right of refusal wants the first bite of the apple, should the owner decide to sell. Legally, that first bite of the apple is called the “right of first refusal.”
A right of first refusal is also a legal agreement recognized under Florida law. Here, it is a contract where a right to buy a piece of property is held by a specific party should the owner decide to sell; the party holding the power will have the right to purchase that real estate before any third party can buy it. If a third party offers to buy the home or condo at a set price, and for certain terms and conditions, the owner must disclose these details to the person who owns the right of first refusal. The right of first refusal then requires the seller to sell the real estate to the owner of the right of first refusal at the same price and under the same terms and conditions as those offered by the third party.
It’s only after the right of first refusal has been declined, that the seller can sell their property to the third party.
Can a Florida Seller Force The Sale of Their Home When There is an Option to Purchase?
Sellers have all sorts of reasons for entering into an option to purchase agreement; however, for some sellers, the fact that there is a third party holding the right to buy their property is of great concern.
These property owners can become frustrated or anxious to get a deal done; they want to get to closing and finalize the transaction.
If the party holding the option to purchase isn’t taking fast action, what can that seller do? Can he or she force a final sale to that slow-moving party?
It depends. The language of these agreements will need to be reviewed. The provisions of these agreements will control what the seller can and cannot do to force a sale.
In an option to purchase, the seller has made an agreement to sell to a third party, which the seller usually cannot revoke — the seller has agreed to sell at a set price and based upon certain terms and conditions. Forcing the person to exercise that option may not be available under the contract, but the savvy seller may be able to “sweeten the deal” in other ways and entice the option holder to accelerate things and close the deal sooner than later.
How? The seller could agree to install new hardwood floors, contribute to the buyer’s closing costs, or to put up a fence, or to vacate the condo quickly. Each deal is different, but smart negotiations might get that deal done quickly.
Why Do Some Sellers Enter Into Options to Purchase and Rights of First Refusal
These contracts may seem strange, or even suspicious, to some people — why not just go ahead and sell the property outright instead of selling these contingent rights to a third party? However, for many sellers and buyers, these are good things to have (in some instances, the seller has no choice, including where the property is a condominium with the association holding a right of first refusal).
For instance, there may be neighbors on a Florida canal that agree to offer each other the “first right” on each other’s property should one of them decide to sell; this keeps the waterfront protected and intact. Family members who own adjoining parcels, likewise, may find that Options to Purchase or Rights of First Refusal are smart ways of protecting a family heritage and inheritance.
Moreover, the Florida Legislature has recognized some situations where these types of agreements are good things. For instance, in Florida Statute 723.701, rights of first refusal were allowed for Florida mobile park home owners’ associations, where these property owners were legally entitled to notice of the intent to sell and to the right of first refusal of the mobile home park.
Options to Purchase, Rights of First Refusal, and Closing a Residential Sale in Florida
If there is some confusion between you, as a seller, and a potential buyer, over a right of first refusal or option to purchase, then you may need to figure out all the legal issues that come into play in your situation. Can the property be sold? Who can buy it? What are your rights? What are the rights of a third party buyer here?
A good piece of advice if you are faced with any of these issues, is to at least 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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I am a probate attorney in Seminole County, Florida. I am dealing with an Option to Purchase property. The rub, if you want to call itd that, is that the “seller” has died before the end of the option period. While I believe that I already know the answer, I have not been able to find a standard form for an Option to Purchase.
The issue that I am presented with is whether or not the Option to Purchase is valid despite a lack of witnesses to the agreement. Both signatures were, however, notarized. I believe that the statute of frauds only requires (1) that the parties be indentified, (2) the property has to be identified, (3) the length of option period has to be spelled out, and (4) how much is to be paid. There are no requirements that the contract be witnessed or notarized.
Any help that you can give me would be appreciated.
I have contract option to buy with procession and monthly payments, mostly interest with Ball On in 18 months. My question if I cannot make balloon payment in full , in Florida is it these same as land contract requiring judicial foreclosure or do i just lose everything because unable to fulfill term of contract????