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What’s Contractual Notice – and Why Is It Important?

How important it is for parties to know how and when to deliver notices under contracts? Bellon v. Acosta, a 2009 case decided by Florida’s 3rd District Court of Appeal, offers a demonstration – and a lesson that cost one party $100,000.

ORLANDO, Fla. – How important it is for parties to know how and when to deliver notices under contracts? Bellon v. Acosta, a 2009 case decided by Florida’s 3rd District Court of Appeal, offers a demonstration.

In this case, the parties signed a 2007 version of the Florida Realtors Residential Sale and Purchase Contract (the FAR 9 form contract). The buyers posted a $100,000 deposit, and the sale price was $5.6 million. The contract included a financing contingency. Both parties understood that the property might not appraise at the sale price, and the buyers kept the sellers informed of the status of the loan application. The financing contingency had a commitment period that ended on Jan. 20, 2008. On Jan. 25, the buyers learned that the bank’s appraisal had come in significantly below the purchase price and notified the sellers that they were terminating the contract. On Feb. 7, the lender formally denied the loan.

However, when the buyers attempted to get their $100,000 deposit back, the sellers objected and claimed they were entitled to the deposit.

The appellate court agreed with the sellers and awarded them the deposit. Why? The financing contingency in that contract required that buyers give sellers a written notice that buyers were unable to obtain a loan commitment by January 20. The contract language continues with a simple sentence “Buyer's failure to provide Seller with written notice that Buyer is unable to obtain a Commitment within the Commitment Period will result in forfeiture of Buyer’s deposit(s).”

If buyers could have rewound the clock and given proper notice, what could it have looked like? The notice section of that specific contract provides that notices can be given by mail, personal delivery or electronic media. It also provides that the notice can be given by a party or that party’s attorney or licensee. Although this is in an older contract form, this notice language is almost identical to the language in today’s CRSP-15 and FR/BAR contracts.

What should this notice have looked like? It’s a written message from one side to the other. If the buyers here had given proper, timely notice, the message could have been something as simple as “Today (January 20) is the end of the loan Commitment Period, and we (buyers) don’t have a loan commitment yet.” Although this meets the minimum requirements quoted above, a better notice might provide detail and context, such as “This letter is Buyer’s written notice to Seller and Broker that Buyer does not yet have the Commitment described in the financing contingency contained in Section 3(b) of the Contract. Today is the last day of the Commitment Period. Although Buyer and Seller now have the option to terminate the Contract, Buyer is not terminating at this time.”

As you can see, the buyers could have been as formal or informal as they like, so long as they conveyed the message in writing by the deadline.

How involved should Realtors be in this process? This is largely a question of how much risk the Realtor is comfortable assuming, although it could also touch on unauthorized practice of law if the Realtor gives specific advice about a party’s legal rights and obligations.

As noted above, a broker or sales associate is permitted to send and receive notices on behalf of a party to the contract. This is true under both the FAR/BAR and CRSP contracts today, as it was under the FAR 9 contract of 2007. The safest path for a Realtor to take is to have the parties write their own notices, with or without the assistance of a lawyer. The more involved the Realtor is in calculating deadlines and attempting to prepare or deliver notices, the more liability the Realtor will incur if things don’t go according to plan and a party finds themselves in the shoes of the Acostas above – out $100,000 due to what was almost certainly an oversight.

Joel Maxson is Associate General Counsel for Florida Realtors

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