“Do I have the right to cancel the real estate contract that I signed?” It is not unusual for a real estate broker or attorney to be asked this question by a buyer who has changed her mind about purchasing real estate. Frequently the purchaser has come from another state in which there is a grace period or other right of cancellation, and therefore assumes that she has the same right in Florida. Purchasers need to be aware that laws concerning real estate contracts differ state by state. In Florida, once a contract is signed by both parties the general rule is that a purchaser does not have the right to cancel unless there is a provision in the contract giving the buyer this right. This article will explore Florida laws relating to cancellation of real estate contracts and provide suggestions for provisions that can be added to purchase and sale agreements to protect the buyer’s needs.
Statutory Rescission Rights for Condominiums
Three Day Rescission. Florida Statutes section 718.503 (2)(c) provides that a seller who is not a developer must include in a residential condominium sales contract one of the following: a) a clause wherein the buyer acknowledges receipt of the pertinent condominium documents more than three days prior to execution of the contract; or b) a clause granting the buyer a three day rescission period. Often this language is presented in a “check the box” provision in the contract, and a buyer should be careful to check the appropriate box. Assuming the buyer has not already received the documents prior to execution of the contract, she will have a three day period, excluding Saturdays, Sundays and legal holidays after the execution of the contract and receipt of the condominium documents, in which to cancel. The statute states that the documents to be provided include a current copy of the declaration of condominium, articles of incorporation, bylaws and rules of the association, and a copy of the most recent year-end financial information and frequently asked questions and answers document. If the seller fails to provide the documents, the rescission period continues up until closing. This is intended to give the buyer the opportunity to review the condominium documents and identify issues related to condominium living. During this period the buyer has an opportunity to investigate and review 1) financial obligations and considerations, 2) use restrictions that would hinder her proposed use, 3) and other matters that she finds pertinent. With regard to financial matters, an informed buyer will review the budget of the condominium association to see how much the monthly assessments are, determine whether the association has reserves for upcoming capital projects such as reroofing and paving, and inquire as to whether any special assessments are being considered.
The three day rescission period gives the buyer an opportunity to review the declaration to see if there are restrictions that would interfere with that buyer’s intended use and to terminate the contract for any reason. For example, a buyer may want to terminate the contract because of restrictions in the declaration of condominium prohibiting pets, limiting residency by children, or restricting rentals of units.
Fifteen Day Rescission. Florida Statutes section 718.503 (1) provides that a contract for the sale of a residential condominium unit by a developer must include language granting the purchaser a rescission period of 15 days from the time that the purchaser is provided with pertinent condominium documents. The 15 day period is intended to give the purchaser an opportunity to review the documents, including the declaration of condominium, budget, rules and regulations, and other matters provided in the developer’s offering circular. Therefore, a purchaser buying a condominium unit from a developer may terminate a contract within the 15 day rescission period.
It should be noted that Florida law does not treat transactions involving home owner association developments the same as condominium developments, and the three-day and fifteen-day rescission rights discussed above are limited to condominium transactions.
Fraud or Misrepresentation
If there has been fraud, misrepresentation or failure to disclose a material defect by the seller, a buyer should discuss the matter with her attorney to see whether rescission is appropriate. There are Florida cases wherein the court has allowed the buyer to rescind a transaction based upon the misconduct of the seller. Careful consideration of the facts of the transaction and the contractual language should be made to determine if a claim for rescission can be supported even when the language of the contract does not grant that right.
Attorney Review. A contract may include a limited time period for review of the contract by the purchaser’s attorney, with the right of cancellation if the attorney does not approve the contract. This can give the buyer an opportunity to go over the contract with her attorney to make sure that the words of the contract comport with her understanding of the transaction.
Inspection Provision that Permits Cancellation. Most contracts provide the buyer with some opportunity to inspect the property. Most inspection clauses allow the buyer to report defects to a seller, who then has an opportunity to correct the problems without giving the buyer a right to cancel. However, an inspection provision can be drafted to allow cancellation by the buyer if the buyer, in her sole discretion, is not satisfied with the results of a home inspection. Clauses can be included to cover a variety of inspections, including but not limited to inspections for mold, radon gas, and environmentally hazardous substances.
Appraisal Provision. A purchaser may include a provision that allows her to terminate the contract if an appraisal does not support the purchase price.
Financing Contingency. If the buyer requires a loan in order to close the transaction, a financing contingency can be included, with a right of termination if the financing cannot be obtained.
Availability of Insurance. Obtaining insurance can sometimes be a challenge for a buyer, particularly when purchasing waterfront property or older buildings that do not meet current building code. A provision can be drafted to give the buyer a limited period of time in which to determine the availability of insurance at a price acceptable to the buyer and the right to cancel the contract if insurance is unavailable.
Remodeling and Renovation. A purchaser may be unwilling to purchase a property if she cannot build a swimming pool, add a garage, or remodel the home. A provision can be drafted that allows the purchaser an opportunity to investigate these matters and gives the right to terminate if the determination is unfavorable.
Review of Restrictions and Governmental Regulation. Many contracts state that the purchaser will accept the property subject to reservations, restrictions and easements of record and applicable governmental regulation. In certain cases a buyer may need an opportunity to review the pertinent easements, restrictions, and zoning regulations to see if they negatively impact her intended use. For example, in some neighborhoods there are restrictions prohibiting the installation of a chain link fence. A buyer with a dog wishing to install a fence may need an opportunity to review the applicable restrictions and be given a right to cancel if the desired fence cannot be built.
Sale of Another Home. A buyer may need to close on the sale of another home in order to complete the purchase of a new home. A provision can be included allowing the buyer to cancel if the sale of the other property does not close within a limited period of time.
A buyer should not assume that she has the right to cancel a real estate contract unless the contract specifically provides that right. A careful buyer should read the contract before signing it and give thought as to whether special provisions should be added to include a right to cancel. Careful drafting of a contract is the best method of making sure that a buyer is provided with rights that address her particular needs.
For more information regarding this article, please contact Teri Costa at (941) 329-6617 or email@example.com.