FR/BAR “AS IS” Contract – To Accept, or Not to Accept, That is the Question

The “AS IS” Residential Contract for Sale (the “Contract“) is a popular real estate contract that limits the seller’s repair obligations and incorporates the seller’s material defect disclosure requirements set for in the landmark Florida Supreme Court case of Johnson v. Davis, and due to the Contract’s popularity, this week’s blog topic discussion is whether ’tis nobler in the mind to suffer a seller’s refusal to make repairs and for the buyer to accept the real property “AS IS”, or for the buyer to take arms against a seller’s sea of troubles for refusal to make addendums to repair and terminate the contract pursuant to “Paragraph 12 Property Inspection; Right to Cancel.”

Unfortunate closing situations may occur when a buyer fails to recognize the strict, but enforceable, provisions contained in an “AS IS” Residential Contract for Sale (the “Contract“).
Paragraph 12 of the Contract states as follows:

(a) PROPERTY INSPECTIONS AND RIGHT TO CANCEL: Buyer shall have _______ [if left blank 15 days] days from Effective Date (“Inspection Period”) within which to have such Inspections of the Property performed as Buyer shall desire during the Inspection Period. If Buyer determines, in Buyer’s sole discretion, that the Property is not acceptable to Buyer, Buyer may terminate this Contract by delivering written notice of such election to Seller prior to expiration of Inspection Period…Unless Buyer exercises the right to terminate granted herein, Buyer accepts the physical condition of the Property and any violation of governmental, building, environmental, and safety codes, restrictions, or requirements, but subject to Seller’s continuing AS IS Maintenance Requirement, and Buyer shall be responsible for any and all repairs and improvements required by Buyer’s lender. (emphasis added).

During the Inspection Period certain unknown or undisclosed defects are generally discovered by a buyer. Common buyer Inspection Period discoveries are frequently: 1) open permitting; 2) undisclosed readily observable and/or easily discovered property defects; 3) past due assessments and special assessments; and 4) unpermitted work and/or construction. Commonly, a buyer and seller will agree to remedy buyer’s permit/repair requests or terminate the Contract. If the parties elect to make repairs or other requests in lieu of terminating the real estate transaction, Paragraph 18 (P) Integration; Modification of the Contract requires requests or modifications to the Contract be formalized by an addendum writing and signed by all parties. Curiously, this practice is not always followed. Buyers are surprised to learn that an email agreement concerning Inspection Period requests between realtors is not binding upon the parties. The same may be said for a buyer’s email attempting to preserve a fraudulent and/or negligent representation claim under Johnson v. Davis.

A buyer should always memorialize Inspection Period requests via a Contract addendum because if the Inspection Period lapses and the seller changes its mind and decides not to honor the promise to make repairs or goes on with the closing without doing the repairs and/or completing other actions requested in an email or other communication, then the buyer has waived its right to cancel the Contact! The buyer is without recourse under the Contact or remedy at law against the seller for these known defects, even if the seller intentionally refused to honor the prior email agreement! If the buyer closes, then any repairs or other real property issues will come out of buyer’s own pocket. Alternatively, the buyer could walk away from the transaction and surrender the escrow deposit as liquidated damages upon the parties’ agreement, or the seller potentially could attempt to sue the buyer for specific performance and force the buyer to close and purchase the property.

As always, should you have any questions or concerns during your real estate purchase, immediately contact your real estate attorney to ensure that no deadline is missed, no contractual right is waived and your interests are protected.

Berlin Patten Ebling, PLLC

Article Authored by Michael E. Schuchat, Esq.

This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.

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