The rule of caveat emptor—let the buyer beware—applied to residential real estate sales in Florida until the Florida Supreme Court decided Johnson v. Davis in 1985. In that case, the Davises bought the Johnsons home. Before the Davises made an additional $26,000 deposit under contract, Mrs. Davis noticed buckling and peeling plaster around the corner of a window and stains on the ceilings. When she asked, she was told by Mr. Johnson that the window had a minor problem that had long since been corrected and that the stains were wallpaper glue and the result of ceiling beams being moved. The Johnsons paid the second deposit, and a few days later, visited the house during a rainstorm only to find water gushing in from around the window frame, the family room ceiling, light fixtures, glass doors and stove in the kitchen.
Florida’s Supreme Court ruled the seller was guilty of fraud in response to Mrs. Davis’s question. However, the court did more. It used the case to declare caveat emptor dead in Florida residential real estate transactions and imposed a duty on sellers to disclose material defects that would not be readily observable by a buyer. The problem with relying on Johnson v. Davis when the buyer finds a defect after closing is that the buyer has to prove the seller knew about the defect. That can be tough.
Rather than rely on a seller to tell a buyer about things that are wrong with the home, buyers should consider a thorough inspection. It can be difficult to get access for inspections prior to the contract. Most sellers do not want “potential” buyers bringing in inspectors and examining their home. Many are unhappy about contract buyers conducting tests and inspections. Hence, a prudent buyer should make sure the contract provides a right for inspections and a reasonable time for the inspections. Scope, time and buyer’s options in addressing defects are all matters that should be addressed in the purchase and sale agreement.
The sales contract forms most commonly used in Collier County for residential, improved property sales provide two different ways of addressing property conditions. Those forms are drafted by the Legal Resources Committee of the Naples Area Board of Realtors (NABOR).
The simplest approach is found in the “As Is” (Residential Improved Property) contract form. That contract gives the buyer 15 days to conduct inspections. Inspections can be by anyone chosen by the buyer, without regard to qualification or licensing. If the buyer is unhappy with the property or transaction in any respect, the buyer can terminate the contract and get a refund of the deposit by notice to the seller before the 15 days expires. The buyer has to pay inspection costs and is not allowed to damage the property as part of the inspection process.
The “As–Is” contract form is not really an as–is contract, since it gives the buyer an option to terminate. However, it makes it clear that the seller has no obligation to repair anything the buyer finds unsatisfactory. Under Johnson v. Davis, the seller must still tell a buyer about any material defect that is not readily observable.
The other residential improved sales contract form is titled “Sales Contract – Residential Improved Property.” That form provides a detailed inspection section with definitions, deadlines, rights and obligations. It is generally referred to as “the sales contract.”
The sales contract gives the buyer 15 days to conduct inspections and mandates those inspections be non–invasive and non-damaging. That means, a buyer cannot drill a hole in the wall even if the buyer wants to see what is behind the wall. The sales contract gives the buyer an additional 5 days to request the seller repair any defective inspection items or for monetary credit equal to the cost of repair. The seller is not required to repair or credit the buyer. If the seller refuses or makes a counteroffer that the buyer is unhappy with, the buyer can terminate the contract and get back the deposit. The buyer has to pay the cost of all inspections.
There is an exception in the sales contract for material defects disclosed to and acknowledged by the buyer prior to the buyer signing the contract. Those are deemed accepted by the buyer. That can be incentive for a seller to tell the buyer about any known defects. Florida does not require a seller provide a buyer any type of inspection or disclosure report, except for material defects which are not readily observable under the Johnson v. Davis rationale. Inspections under this contract must be done by a person licensed to repair or inspect the pertinent item under Florida law.
The sales contract also defines defective inspection items. A buyer can only request repair or credit for an item which is defined as a defective inspection item in the contract. The contract generally excludes cosmetic items and defines a defective inspection item as being one which is not operating in the manner intended to operate, or if structural, a component which is not structurally sound and watertight. The sales contract limits mold as a defective inspection to toxic or pathogenic mold and defines radon levels above the EPA action levels as defective. That means, a buyer has no right to request and the seller has no obligation to consider remediation of items that are not defined as defective inspection items.
If a buyer requests a credit or repair, the buyer must provide the seller with a complete copy of the inspection report. If credit is requested, the buyer must also provide a proposal or estimate. The contract makes sure that the seller gets to look at the inspection report to see if the seller agrees to the action requested by the buyer meets the contract requirements.
The sales contract recognizes the buyer is buying a used home, or is that a “previously occupied residence?” That means the home is not brand-new. It limits the seller’s liability to the used value of any defective item for which the buyer request repair or credit.
Contract forms are designed as “one-size-fits-all.” A particular form might not fit a buyer. A good example is mold. The sales contract only makes toxic or pathogenic mold a defective inspection item. A buyer with a breathing problem may need more protection. Other matters of concern to a particular buyer may not be addressed to the buyer’s satisfaction in a form contract. For those reasons, and to make sure the buyer understands all the terms of a contract, prudent buyers review contract forms with their attorney before signing and use a qualified attorney to represent them as they move forward to closing.
William G. Morris is the principal of William G. Morris, P.A. William G. Morris and his firm have represented clients in Collier County for over 30 years. His practice includes litigation and divorce, business law, estate planning, associations and real estate. The information in this column is general in nature and not intended as legal advice.