Wednesday, October 21, 2020

Read It (The Contract) Or Weep

Law Matters


Bought a new car recently? A house? Applied for a loan? New software? Use the internet? All of these involve contracts and most of the contracts are small print and many pages long. Contracts are everywhere on the internet. Sign up for a new service, buy some software or even try to access a website and you get the usual scroll down contract with a box to agree or disagree. If you disagree, you do not get to use the service or software. If you do not read those contracts, you might regret it later. 

The long-standing law in Florida is if you sign a contract, you are presumed to know the contents. That has been applied in all formats, even when the signer is illiterate. Florida cases confirm there is no obligation to explain a contract, even if the person does not understand English. Florida law goes so far as to hold that every party to a contract has a duty to understand the contents. 

Why don’t people read the documents they sign? Most of them are just too busy, some of them are too lazy, and others would not understand whatever they read, so why bother? All are stuck with whatever they signed or clicked “agreed.” In a business setting, it is every person for himself or herself. Even a bank does not owe the customer a special duty to make sure everything is as the customer wants it nor does the insurance company. Someone unhappy with a contract might claim they were misled by the other party who was under a special duty, but those are rare cases. Most such claims find that there was no special duty and the pain caused by failure to read or understand will not go away. 

A good example of a contract that is rarely read before signing is a real estate sales contract. I just got through reviewing the contract package for a client buying a home from a developer. The contract was more than 20 legal pages long and had additional pages attached as riders, disclosures and requirements. The whole buyer contract package was more than 50 pages long, all legal-size paper. The contract was very favorable to the developer even though it met all the disclosure requirements of State and federal law. 

Forms for non-developer sales can also be complicated. The local form used for most non-developer real estate sales is drafted by a committee of the Naples Area Board of Realtors. I am a member of that committee and helped draft that contract form. It is 12 lettersized pages long with normal size type. Even though it is a lot shorter than a contract package provided by developers, it is rarely read other than the blanks filled in by a Realtor to confirm the price, closing date and other important items that cannot be preprinted. Because the contract is a preprinted form, many think it is safe. It is a good contract, but let us take a look at some of its terms to help emphasize why it is important to read everything before one signs. 

Southwest Florida is one of the few markets in the country where most of the residential property is sold furnished. There is a line for listing furnishings or referencing an attached addendum if furniture is included, but there is also a list of preprinted items that are included unless changed. That list includes refrigeratorsranges, dishwashers, washers and dryers. In some parts of the country, refrigerators do not stay. In others, washer and dryer move with the seller. Locally, both go to the buyerHow does the seller feel if the seller planned on taking the washer, dryer and refrigerator when the seller finds out the contract requires all stay with the property after the contract is signed? 

The contract makes the closing date “time of the essence.” That means, if either party fails to perform on the closing date, that party is in default. In many parts of the country, the closing date is an approximation and is not etched in stone. Someone from one of those areas may think he or she need not be on time for closing. They can lose a sale or deposit. 

The local contract gives the buyer 15 days to conduct inspections, requires inspections to be done by someone who is licensed to repair or inspect the item, and allows 5 additional days for the buyer to ask the seller to fix defective inspection items, or be given a monetary credit. The seller has 10 days to respond and the buyer has 5 days after the seller’s response or response deadline to terminate the contract if the seller does anything other than agree to the buyers request concerning any defective inspection item. 

That seems simple enough, but if the buyer fails to make a timely request, the buyer can be stuck with property “as is.” If the seller fails to respond and the buyer does not terminate the contract because negotiations are ongoing concerning repairs, the effect is the same. 

The local contract also defines the defective inspection item. If buyer is worried about mold, the mold must be toxic or pathogenic to be a defective item. That might not be sufficient protection for someone with asthma or breathing problems. Structural items are not defective if they are functioning as intended and are structurally sound. When the roof report states the roof will need to be replaced within the next year, but is not currently leaking, it is not defective roof. A buyer needs to understand the contractual definition of defective inspection item and the buyer’s rights concerning the same. Other contract forms address these items differently. 

Everyone wants to get good, marketable title when they are spending a lot of money for real estate. Most buy title insurance to make sure they are protected. The local contract sets out each party’s rights and obligations concerning title matters. The buyer has 30 days to tell the seller if there are any items that make the title unmarketable. The seller has 30 days to correct title defects for which the seller received timely notice from the buyer. What happens when the buyer signs the contract and closing is not for another 90 days or more? Will the buyer get the contract to his or her attorney in time for the title search within 30 days? Maybe not, if the buyer does not realize there is a 30-day deadline. 

Closing costs are addressed in the local contract. Items generally associated with most residential real estate closings are allocated to one party or the other. The contract incorporates local custom and seller pays documentary stamps of $7 per thousand dollars of purchase price and the buyer pay for title insurance with rate starting $5.75 per thousand dollars of the purchase price. The contract provides that if the transaction takes place in Lee County, custom in Lee County is followed with the seller paying for both title insurance and documentary stamps. I have seen a number of people buying property in Collier after selling property in Lee, complaining that they paid title insurance when they sold and should not have to pay title insurance when they buy. The complaint comes when they get the closing statement, not when they signed the contract and responsibility for title insurance cost might have been negotiated. They did not read the contract. 

Twelve pages of the local sales contract certainly address a lot more than I have touched in this column buI think you get the picture. Even form real estate sales contracts should be carefully read before signing. 

Everyone knows that ignorance of the law is no excuse. Many do not know that ignorance of contract content is also no excuse. Failure to read and failure to understand the terms of a contract are not usually good defenses under Florida law. Everyone should read before they sign. 

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.  


 

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