Last Update: 3/24/20
Learn about the different ways to rescind a contract including using the force majeure provision because of the coronavirus.
When things go bad in a Florida real estate transaction, or an unplanned event occurs, the first thought a buyer or seller may have is to walk away. Just get out of the deal. However, is this possible? Can the buyer or seller cancel the transaction?
Under Florida law (contract and case law), a buyer and/or seller 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.
For example, in most “standard” Florida real estate contracts (like the Florida Realtors/Florida Bar Contract), there is a “Force Majeure” provision (Section G under the “Standards For Real Estate Transactions”). Force Majeure means the seller or buyer will not be required to perform under the contract as long as performance or non-performance is disrupted, delayed, caused or prevented by:
Hurricanes, floods, extreme weather, earthquakes, fire or other acts of God, unusual transportation delays, or wars, insurrections, or acts of terrorism, which, by exercise of reasonable diligent effort, the non-performing party is unable in whole or in part to prevent or overcome. All time periods, including Closing Date, will be extended a reasonable time up to 7 days after the Force Majeure no longer prevents performance under this Contract, provided, however, if such Force Majeure continues to prevent performance under this Contract more than 30 days beyond Closing Date, then either party may terminate this contract by delivering written notice to the other and the Deposit shall be refunded to Buyer, thereby releasing Buyer and Seller from all further obligations under this Contract.
Please note, each contract may define this section differently, so read that provision carefully.
Furthermore, these provisions will likely be the subject of litigation given the current coronavirus pandemic based on the “other acts of God” language. The issue here is whether or not a virus is considered an act of God. The bad news is the parties will likely have to engage in litigation, which can be costly as well as being a non-contingency based case. However, the good news here is that most contracts allow for the prevailing party in litigation to recover their attorney fees. Of course, litigation is not available under most Standard real estate contracts until the parties have mediated their dispute (See the Default provisions under the contract – paragraphs 15 and 16 of the Florida Realtors/Florida Bar Contract).
Another contract based issue to consider when a buyer seeks to terminate a deal relates to mortgage financing. A buyer may be able to lawfully cancel a deal because his or her lender pulled the loan commitment at the last minute (this is happening today because of the uncertainty with real estate values as a result of the coronavirus).
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 Common Law
Under Florida common law, just because a real estate contract does not include the right to cancel or rescind the deal, it doesn’t mean the buyer or seller is left without this remedy.
In these situations, the buyer can raise common law causes of action or reasons to rescind a deal like fraud or mistake (see below). In these situations, a lawsuit is filed and the plaintiff requests the remedy of rescission. If the plaintiff is successful, the Judge will enter an Order rescinding the deal with the goal of returning the parties to the same position they were in prior to entering into the transaction.
More Grounds For Rescission or Canceling A Contract
There are other contractual and common law reasons to cancel a real estate contract, including:
Title Defects Which Cannot Be Cured
For example, the buyer can choose to rescind or cancel a real estate agreement if he or she learns that there is a fatal title defect. If the seller is unable to remove a defect and transfer clear title at closing, then the buyer can cancel the deal. A common issue here is where there are heirs of a prior owner who are either deceased or unable to be located. Of course, this issue can be resolved with a quiet title action but many buyers may not want to wait for that process to be completed.
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. For example, the seller knew about a property defect that materially impacted the value of the property and failed to disclose that information to the buyer.
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 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. Does the Force Majeure provision apply?
Second, if there is no contract provision that allows for rescission, is there a cause of action under Florida’s common law that will allow you to cancel the agreement.
The bottom line is this, if you are facing a 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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