© 2009 by South-Western, Cengage Learning SAMIRLANDER Chapter 11

Florida Real Estate: Principles, Practices and License Law Chapter 11 Real Estate Contracts © 2009 by South-Western, Cengage Learning

Key Terms Assignment Attorney-in-fact Bilateral contract Competent Contract Exclusive right to buy Executed contract Executory contract Expressed contract Implied contract Liquidated damages Meeting of the minds Novation Option contract Rescission of a contract Statute of Frauds

© 2009 by South-Western, Cengage Learning Key Terms Statute of Limitations Unenforceable Unilateral contract Valid contract Void contract Voidable contract

© 2009 by South-Western, Cengage Learning Definitions Agreement between two parties to do or not do something Contract of forbearance Written or oral Statue of Frauds Contracts to purchase or sell real property must be in writing to be enforceable

© 2009 by South-Western, Cengage Learning Categories of Contracts Expressed contract: Expressed contract: intent is stated in the contract Implied contract: Implied contract: intent is indicated by actions

© 2009 by South-Western, Cengage Learning Categories of Contracts Valid contract: Valid contract: meets all essential requirements Enforceable: can be upheld in court Unenforceable: Unenforceable: cannot be upheld a court Void contract Void contract: lacks one or more of the essential requirements Not binding Not a contract Voidable: Voidable: valid until action is taken

© 2009 by South-Western, Cengage Learning Categories of Contracts VALID Binding and enforceableVOIDABLE One party can cancel due to fraud, duress or undue influenceUNENFORCEABLE Cannot be enforced in courtVOID No legal effect, no contract Figure 11.1

© 2009 by South-Western, Cengage Learning Categories of Contracts Bilateral contract: Bilateral contract: promise for a promise Unilateral contract: Unilateral contract: promise is exchanged for performance Option contract: Option contract: right but not the obligation to buy at set price

© 2009 by South-Western, Cengage Learning Categories of Contracts UILATERALBILATERALEXPRESSEDIMPLIEDEXECUTORYEXECUTED = Promise for an act = Promise for a promise = Verbal or written = Created by actions = Some action needed = Completed contract Figure 11.2

© 2009 by South-Western, Cengage Learning Categories of Contracts Executed contract: Executed contract: fully performed Executory contract: Executory contract: some or all requirements not completed

© 2009 by South-Western, Cengage Learning Contract Validity and Enforcement Requirements Four elements for validity onsideration greement egal objective egally competent parties

© 2009 by South-Western, Cengage Learning Contract Validity and Enforcement Requirements Consideration: Consideration: promise to give up something of value Valuable consideration: monetary value Good consideration: no monetary value Love, affection, good will

© 2009 by South-Western, Cengage Learning Contract Validity and Enforcement Requirements Agreement: Agreement: mutuality Meeting of the minds: offer and acceptance Conditions: Offeror makes offer to offeree Offeree accepts offer Acceptance is communicated to offeror

© 2009 by South-Western, Cengage Learning Coaching Tip

© 2009 by South-Western, Cengage Learning Counteroffers Counter offer terminates original offer

© 2009 by South-Western, Cengage Learning Withdrawal of Offers

© 2009 by South-Western, Cengage Learning Contract Validity and Enforcement Requirements Mutual agreement does NOT permit: Intentional misrepresentation Innocent misrepresentation Mistake

© 2009 by South-Western, Cengage Learning Contract Validity and Enforcement Requirements Act intended to deceive Injured party may rescind

© 2009 by South-Western, Cengage Learning Contract Validity and Enforcement Requirements Without intent to deceive Injured party may rescind Licensee may face: Civil liabilities Disciplinary action by FREC

© 2009 by South-Western, Cengage Learning Contract Validity and Enforcement Requirements Error in fact: Mutually by both parties Unintentional Without negligence

© 2009 by South-Western, Cengage Learning Contract Validity and Enforcement Requirements Offer and acceptance must be freely given Duress: forcing against someone’s will Undue influence: taking unfair advantage Voidable: Voidable: injured party may rescind

© 2009 by South-Western, Cengage Learning Contract Validity and Enforcement Requirements Legal Objective: Must have a legal purpose Void: cannot be enforced

© 2009 by South-Western, Cengage Learning Contract Validity and Enforcement Requirements Legally Competent Parties: Minors Intoxicated persons Insane persons

© 2009 by South-Western, Cengage Learning Contract Validity and Enforcement Requirements Legally Competent Parties: Intoxicated persons Voidable Insane persons Declared incompetent by the court - void Later determined to be incompetent - voidable

© 2009 by South-Western, Cengage Learning Contract Validity and Enforcement Requirements VALID REAL ESTTE CONTRACTS Must be In writing SufficientconsiderationLawfulobjectiveMutualconsent Figure 11.3

© 2009 by South-Western, Cengage Learning Contract Validity and Enforcement Requirements Legally Competent Parties: Attorneys-in-fact Power of attorney Valid Corporations Artificial or legal persons Valid

© 2009 by South-Western, Cengage Learning Methods of Discharging Contracts Performance Assignment Novation Termination

© 2009 by South-Western, Cengage Learning Methods of Discharging Contracts Transfer of rights and interest in an executory contract Allowed unless prohibited in the contract

© 2009 by South-Western, Cengage Learning Methods of Discharging Contracts Substitution of: Contracts Parties Examples: Loan assumption Lease assignment

© 2009 by South-Western, Cengage Learning Methods of Discharging Contracts Assignment of contracts: Assignor: person who assigns Assignee: person to whom interest is assigned Assignee is p rimarily liable Assignor is ultimately liable

© 2009 by South-Western, Cengage Learning Methods of Discharging Contracts Mutual agreement Expiration of time Rescision of voidable contract Operation of law

© 2009 by South-Western, Cengage Learning Methods of Discharging Contracts Unanimous decision to terminate Time limit or restriction expires

© 2009 by South-Western, Cengage Learning Methods of Discharging Contracts Voiding of contract due to: Fraud Statue of limitations Other causes: Destruction of property Bankruptcy Death

© 2009 by South-Western, Cengage Learning Methods of Discharging Contracts Florida contracts which must be in writing: Deeds Sales contracts Options Lease for more than one year Listing for more than one year

© 2009 by South-Western, Cengage Learning Methods of Discharging Contracts Verbal enforceable Florida contracts: Leases for one year or less Listings for one year of less

© 2009 by South-Western, Cengage Learning Status of Oral Contracts VALIDENFORCEABLE Open Listings YesYes Leases – 1 year or less YesYes Sales Contracts YesNo Leases – over 1 year YesNo Exclusive Listings NoNo OptionsNoNo Debt Instruments (Mortgages) NoNo DeedsNoNo

© 2009 by South-Western, Cengage Learning Status of Oral Contracts VALIDENFORCEABLE Open Listings YesYes Leases - one year of less YesYes Sales Contracts YesNo Leases – over one year YesNo

© 2009 by South-Western, Cengage Learning Status of Oral Contracts VALIDENFORCEABLE Open Listings YesYes Leases - one year of less YesYes Sales Contracts YesNo Leases – over one year YesNo

© 2009 by South-Western, Cengage Learning Status of Oral Contracts VALIDENFORCEABLE Open Listings YesYes Leases - one year of less YesYes Sales Contracts YesNo Leases – over one year YesNo

© 2009 by South-Western, Cengage Learning Option Contracts The right but not the obligation Unilateral contract Optionor Optionee

© 2009 by South-Western, Cengage Learning Option Contracts Exclusive right to buy Only the optionee can purchase during the option period Specified time Sales price Exercising the option

© 2009 by South-Western, Cengage Learning Option Contracts Exclusive right to buy Valuable consideration must be paid Insufficient amount = unenforceable contract May or may not be applied to the purchase price Unexercised option = forfeiture of option $

© 2009 by South-Western, Cengage Learning Option Contracts Essential elements of a contract Commission earned when option is exercised Assignable unless prohibited

© 2009 by South-Western, Cengage Learning Option Contracts Interests in optioned property Optionor retains title Optionee has no legal interest Equitable title once option is exercised

© 2009 by South-Western, Cengage Learning Option Contracts Categorizing option contracts Until exercised: executory Once exercised: executed Only one party is obligated = unilateral contract

© 2009 by South-Western, Cengage Learning Option Contracts Right of first refusal Right to buy if and when it is for sale No predetermined price No fixed time Option Exclusive right to buy Predetermined price Fixed time

© 2009 by South-Western, Cengage Learning Option Contracts Owner may sell during the option period Option remains in effect

© 2009 by South-Western, Cengage Learning Breach of Contracts Failure to live up to contractual obligations Innocent party has right to remedy Does not terminate the contract

© 2009 by South-Western, Cengage Learning Breach of Contracts Partial performance Rescision Sue for specific performance Sue for damages Liquidated damages

© 2009 by South-Western, Cengage Learning Breach of Contracts Liquidated damages Liquidated damages as earnest money May not sue for additional damages Statute of Limitations: Statute of Limitations: specific time period Laches

© 2009 by South-Western, Cengage Learning Breach of Contracts Performed on or before a specific date

© 2009 by South-Western, Cengage Learning Listing Contracts Exclusive right to sell: Broker is paid regardless of who sells the property Exclusive agency: Broker is paid regardless of who sells with exception of the Seller

© 2009 by South-Western, Cengage Learning Listing Contracts Open listing: FSBO One or more agents Whoever sells the property is paid Net Listing: Broker is paid over a set amount Broker’s payment should reflect customary amount Prohibited in most states

© 2009 by South-Western, Cengage Learning Contract of Sale Seller agrees to sell and buyer agrees to buy Closing at later date: Title Financing Duties and obligations of the parties

© 2009 by South-Western, Cengage Learning Contract of Sale Must contain: Names of parties Property description Date, time and location of closing Purchase price and financing terms Amount of earnest money Type of deed Personal property Brokers Disclosures

© 2009 by South-Western, Cengage Learning Contract of Sale Radon gas Lead based paint Energy-efficiency Condominium or cooperative Homeowners Association Property tax Johnson v. Davis property Defect

© 2009 by South-Western, Cengage Learning Contract of Sale Colorless, odorless toxic gas due to uranium decay Disclose what radon is Provided prior to or at time of signing contract

© 2009 by South-Western, Cengage Learning Contract of Sale Federal law requires disclosures on homes built prior to 1978 Protect Your Family from Lead in Your Home 10 day testing period

© 2009 by South-Western, Cengage Learning Contract of Sale Florida Building Energy- Efficiency Rating Act May qualify for energy- efficient mortgage

© 2009 by South-Western, Cengage Learning Contract of Sale Florida Condominium Act or Florida Cooperative Act

© 2009 by South-Western, Cengage Learning Contract of Sale Mandatory associations: Restrictive covenants Assessments

© 2009 by South-Western, Cengage Learning Contract of Sale Prior to execution of sales contract Current tax levied Not representative of future tax

© 2009 by South-Western, Cengage Learning Contract of Sale Known material defects affecting value Rayner v. Wise Realty Co. of Tallahassee Property condition disclosure to licensees

© 2009 by South-Western, Cengage Learning Contract of Sale Not required Shows good faith Acts as liquidated damages

© 2009 by South-Western, Cengage Learning Contract of Sale Deposit immediately in escrow account Broker: No later than 3 banking business days following receipt Sales or broker associate: delivered to broker no later than 1 business day following receipt

© 2009 by South-Western, Cengage Learning Contract of Sale Offers terminate if not accepted within specified time No time limit – offers expires after reasonable time

© 2009 by South-Western, Cengage Learning Contract of Sale Exactly as written An accepted offer already exists Short contract used until formal contract can be prepared by an attorney

© 2009 by South-Western, Cengage Learning Contracts of Sale Land contract, Contract for deed, Contract for title Seller holds the deed Purchaser has possession and makes installment payments

© 2009 by South-Western, Cengage Learning Contracts of Sale Legally: Seller holds legal title Buyer holds equitable title Practically buyer owns property Pays property taxes Deducts mortgage interest Claims depreciation on income- producing property