In any residential real estate deal here in Florida, there’s lots of talk about “closing.” It’s a big deal for both the seller and the buyer because that’s when their transaction gets finalized. Closing means the seller gets the cash and the buyer gets the keys.
To learn more about closings, read our past posts about things that take place during the closing process, including:
- 10 Popular Articles About Florida Real Estate Closings
- Real Estate Closings: 4 Things to Know About Closing on Your New Home
- 5 THINGS TO KNOW ABOUT WITH FLORIDA CLOSINGS.
Duties of Seller and Buyer after a Florida Real Estate Closing
Real estate agents may talk about the “closing table” or “closing day,” phrases that may be new to their clients. Most buyers and sellers aren’t well acquainted with real estate terminology, why should they be?
If the real estate professionals are asked to explain what “closing” means, they may discuss things like the seller will turn over possession of their condo then, or that the buyer will need to have their purchase money ready to turn over by that date. That’s all true.
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Do Provisions in a Residential Sales Contract Survive When You Leave the Closing Table?
The Sales Contract and Closing
One thing that they may not explain about closing: what happens to that sales contract the buyer and seller have signed? To be fair, real estate agents are not lawyers. In fact, it’s illegal for a real estate agent or broker to hold herself out as being an attorney.
They are not to give legal advice. See our post for details, “When Is a Florida Real Estate Agent or Broker Guilty of the Unauthorized Practice of Law?”
Not being lawyers, they may not know to explain something that is very important to sellers and buyers: the doctrine of merger.
What is the Doctrine of Merger?
Merger is a big deal to anyone buying or selling real estate in Florida. Merger concerns how the residential sales contract and the deed work together.
In Florida, after closing:
- Is the sales agreement a valid contract? or
- Does transfer of the deed override that sales agreement?
In most Florida sales contracts, you will see the language repeated throughout the document, “This provision will survive closing.” That sentence is inserted to make sure that both the seller and the buyer understand that the duties and responsibilities described in that paragraph continue after the closing.
Without this phrase, a party can argue that the provision no longer applies to them, and they no longer have the duty or responsibility, because of the “merger doctrine.”
Under the doctrine of merger, if something needs to be done before the deal closes, or the contract doesn’t state that it is a task to be undertaken after closing, then those duties end at closing.
The seller’s obligations “merge” into the deed that is transferring title to the real estate.
Just because the buyer and seller have closed on their residential real estate transaction does not mean that the sales contract is old news. Its provisions can still control, if the parties have been careful to draft the sales agreement to protect against the merger doctrine.
Months after closing, a seller or buyer may get notice that they need to comply with language in their sales agreement. This can come as a very big surprise!
Warranties and Merger
In legal language, not all residential sales contract provisions “merge” into the deed. Here’s an example of how this works: the case of Southern Nat. Track Services v. Gilley, 152 So. 3d 13 (Fla. Dist. Ct. App. 2014).
The Gilley Case
In Gilley, a company named Southern National Track Services, Inc., negotiated through their agent, Mr. Plezia, to buy a piece of property that had a big “modular” home as well as several small cottages on it.
The company liked this property because it would work well to house its employees – including Mr. Plezia. It sounded great: the modular home was advertised for sale as having two bedrooms as well as a swimming pool and a fountain. The company’s workers could enjoy the pool while they were completing the company project there in the area.
Warranty in the Sales Contract
Mr. Plezia did a walk-through and then signed a sales contract on behalf of the company. Two key things here in the contract language:
- the provision stating the right for the company to get an inspection of the place within 20 days of signing the contract, as well as
- a contractual provision that gave an express warranty by the seller that at the time of closing there were no violations of “…land use plans, zoning, restrictions, prohibitions and other requirements imposed by governmental authority….”
No Inspection before Closing
However, the company didn’t exercise their right to have a third party inspector check things over. Mr. Plezia’s walk through seemed good enough at the time.
After all, as he explained in his testimony, the modular house looked like a typical two bedroom residence. Plus, he was told that the seller had personally lived in the home. Mr. Plezia thought it was fine.
The deal closed. The deed was finalized. Money was exchanged.
Property Defects Discovered After Closing: Mold
Then, some months later, the Florida rainy season hit. The modular home leaked. Black mold popped up on the walls.
Professionals were called in. They explained that this place was not a modular home at all, but a large storage building that had been converted into living quarters without bothering to meet any zoning laws, building codes, or housing regulations.
So, the company sued. The seller argued that the deal was done. The contract warranty and the contract provisions were finished.
The seller defended against having to pay anything to the buyer by arguing that the buyer could have had an inspector check things out before they closed.
Not the seller’s problem if the company didn’t have an inspection before closing, the defense asserted.
Moreover, the express warranty in the sales contract? The seller argued that it “merged” into the deed. After closing, the seller argued that the contract terms didn’t protect the buyer any longer.
Legal Doctrine of Merger and the Gilley Sales Contract
However, the appeals court disagreed. The court considered the argument based upon the legal doctrine of merger.
The doctrine of merger did not apply. Why not?
To have the express warranty in the sales contract “merge” with the deed and no longer work to help the seller after closing, there needs to be evidence presented to the court that this was the express intent of the parties.
The sales contract had no language that the seller and buyer intended for that express warranty regarding the modular home to end at the closing table and “merge with the deed.”
So the contract duties defined in the warranty survived closing. And under these warranty provisions, the buyer could not use the modular home as a residence because it violated zoning laws, building codes, and more, at the time of closing. It would be illegal to do so.
Lesson here: (1) the expressly stated warranty under the sales contract, as written, survived the closing under the merger doctrine; and (2) the evidence presented by the buyer demonstrated that the warranty placed a duty on the seller to make things right.
This being a summary judgment case, the reviewing court reversed the trial court’s judgment and sent the case back for trial consistent with its rulings. For a discussion of “summary judgment” proceedings, read out post: “Will Your Claim Survive A Summary Judgment Motion?”
Merger and Your Residential Real Estate Transaction
Anyone involved in a residential sales transaction here in Florida is wise to make sure they review their contract language closely before they sign the document.
- If sellers want to make sure that a duty or responsibility to the purchaser does NOT live past the closing, then it’s best to insert specific language into the sales agreement that makes this clear.
- If buyers want to make sure the sellers will have duties to them that survive closing, then this language needs to be clearly stated in the sales contract, too. Usually, that language is the standard phrase “This provision will survive closing.”
It may be possible to argue that a sales contract provision lives on after closing without this phrase, but expect a legal fight if things are not clear. Even going to court to fight about whether or not the contract provision still requires action.
Usually, sellers asked to perform tasks and spend money after they’ve left the closing table are going to be looking for arguments that the merger doctrine applies. Why? The merger document means that their obligations have been “merged” into the deed and they don’t have to do anything more. Like paying for damages discovered with the home or condo by their new buyer after they’ve moved into the place.
Florida Real Estate Lawyer and Residential Sales Contracts
The merger doctrine is an excellent example of how invaluable it can be to have an experienced Florida real estate lawyer review a residential sales contract for a Florida home or condo before it’s finalized.
As we’ve discussed here, unless there is specific language in the sales contract that obligations survive the closing, then the legal doctrine of merger can be used as a defense against having to meet that obligation. Sometimes, that may be a small problem, like fixing a broken fence gate. Then again, it may be a serious problem like those exemplified in the Gilley case.
Our offices offer a free initial consultation in case you would like to learn more about how the merger doctrine applies in your situation.
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